Gold, is an "investment".  No more, no less.  It has a perceived value (much like stocks, bonds, currencies, real estate, etc)... In other words, it's worth only what "the other guy" is willing to pay for it.  No more, no less.  It's in high demand in times of economic panic, and low demand in times of economic prosperity

Historically, the time to buy into any "investment category" is when people fear it... when no one wants it... and when people are skeptical about it's future value...

Euphoria versus panic... That's the way to think about the stock market, real estate, currencies, and YES, Gold... Everyone (overgeneralizing of course) wants to buy during the euphoria, everyone wants to sell during the panic... True of real estate up to about 3 years ago, true of the stock market in the late 90s and early 2000, and now the question is, where are we on that scale with gold (?).

.... As gold has already tripled in price, clearly we're more toward the "euphoria"(of gold as an good investment)... This doesn't mean that gold can't or won't go higher (that can't be predicted), BUT IT DOES MEAN that you're taking far more risk buying gold now than had you bought it when few wanted it (around $400)....

Gold is seen as a "safe haven"... A place to invest in times of uncertainty and panic... The time to buy gold, is when no one wants it, when the economy is in good shape... At the moment, Radio, TV, your cab drivers,etc are all advising you to buy gold... WHY?  Because there's economic panic in the streets (metaphorically) High unemployment, a relatively weak dollar, and a Democrat administration spending money like it's going out of style... Eventually, the economy will cycle back up and with it, gold will cycle back down... The panic in the economy will subside and with it, the price of the "safe haven" gold will likely fall in proportion with it.

Generally speaking, when the TV, radio, and magazines are all on board with an investment theme, whether it's (dot)com stocks, real estate, or in this case "gold", it's time to be cautious.. VERY CAUTIOUS ...

You're exactly right...

In fact, gold has been among the worst long-term investments over the years.  Had you purchased gold around the turn of the century back in the early 1900s, you would have only seen an annual return in the neighborhood of 1-2% per year, compared to the stock market at slightly over 10%, and bonds in the 5-6% range.  Had you purchased gold during the last major economic "panic" (The Jimmy Carter days of the late 70s, early 80s), you would have only recently gotten back to even and currently would be showing only a meager annual percentage gain (considering it took almost 30 years to make it).  Comparisons showing Gold beating the stock market are VERY SELECTIVELY choosing the time periods they're looking at.

Last edited by realityman (2009-12-25 05:56:44)

Gold is only a measure of what currency is worth. The value of the dollar has gone down since currency was first created. I would rather invest in equity in reputable stock exchanges.

Does gold have a "boom/bust" cycle?

I'm asking cause, in my uneducated and unexperienced opinion, it would just rise and fall inversely with the economy. It wouldn't go "bust" like the mortgage market or technology bubble. It would just de-value as perception of our economy became positive... or gain value, like it is now, as uncertainty increases.

Last edited by Abraxas (2010-02-09 01:31:55)

The historical average since 1978 was around 100 and from 1982 to 2000 was around 375.  The 1980's boom was a run up of 650% since the previous historical average.  The boom we have now is a run up of 200%. (Roughly of course)

You can argue that the 1980s was worse; that its got ways to go, but I doubt it.

Here is more charts:
From 1833-1999

Obviously, the run up in the 1980s is unprecedented. 

From 196-1999

This one shows a little perspective.  Of course compare that to the 1970 to Present graph and you get the idea.

There really is no boom and bust cycle here. Just a steady increase in gold.  I don't think you need to make any comparison to the economy's or stock markets boom and bust.  Gold is in a league of its own...