Is it a good idea to invest in gold?

I think Youngfellow is misanalyzing the data. He assumes that $800/oz. is a place to sell to take profits and he's probably basing that on the all time gold nominal high set in 1980 of $850/oz. But, that analysis is rather weak in my opinion.

Yes, gold has rise rapidly since 2001, but the premise they are probably using is that the rapid increase in value has made gold "overvalued". That is actually an erroneous assumption. Let me see if I can explain. Gold hit it's all time nominal high in 1980 at $850 per oz. Today, gold is trading around $660/oz. Okay, from the bottom in 2002 at $250/oz, gold is up 164%. Now, people will say, "Hey, that's a lot, gold is now overvalued". But is it? Let's think about this. From 1980 to 2002, gold went through a 22 year secular bear market. We are only 4 years into a gold secular bull. Also, what Youngfellow is doing is basing his analysis on nominal prices. You need to look in terms of real prices. The last time gold traded in this range was in 1982/3. If you take the rate of inflation from then to now, gold should be trading around $1800/oz. As a matter of fact, to equal gold's all time high of $850/oz., adjusting for inflation, gold would have to trade at $2,275/oz to equal the 1980 highs.

For instance, you have those that will tout stocks instead of gold. If you look at the inflation data reported by the BLS, from 2000 to the end of 2006, cumulative inflation was 20% (It's actually higher than that since the gov't has a bad habit of manipulating data so things look a lot better, but let's stick with the BLS numbers of 20%). If you take the Dow high in 2000 of 11,722 and add 20%, that gives us 14,066. In other words, to break even in stocks, the Dow would have to be trading at 14,066 to break even. That figure is higher now since 1) inflation is a major concern for the fed and 2) five months have passed since the end of 2006.

What concerns me is this, Youngfellow says that gold prices have gotten volatile. Okay. So what? Prices are meant to move in up and down waves. In 2006 gold shot up nearly $200/oz. in a matter of weeks. That was way too fast and gold had to correct - which it did. It is now going through a normal consolidation phase before it's next leg up. Yet, the equities markets have for the last 4 years have steadily climbed up (expect for Feb. 2007 with that 400 point drop) and broken it's all time nominal highs without even breaking a sweat - that is not normal. The last time the market has long an uninterrupted stretch of advances was in 1929 - we know what happened then.

Right now, the US Dollar is on the verge of collapse. The US Dollar Index (USDX) is sitting just above MAJOR CRITICAL support at 80. If the USDX breaks below that, look for all hell to break less as in a relatively short time of break that support level, you'll see a full blown dollar crisis. Now, Bernanke is caught between a rock and a hard place. Inflation is a major concern as has been demonstrated by the major central banks around the world raising their rates. The last BoE rate hike took their short term rate to 5.50% - 25 basis points above the U.S. The ECB will most likely raise rates again. So, Bernanke is stuck. The only thing keeping the dollar afloat right now are interest rates. There is an outcry for the Fed to cut interest rates to bouy the housing market and economy, but if Bernanke does that, he'll kill the dollar and will trigger a dollar rout. If he raises rates to save the dollar, he'll put additional downward pressure on the housing market and economy. If he does nothing and leaves rates steady, the continuing deterioration of the U.S. economy will continue to push the dollar down, which in turn is inflationary, which in turn will drive gold prices up.

So, here is what we have:

1) Gold just came off of a 22 year secular bear market.
2) Adjusting for inflation, gold should be trading at $1800/oz. right now, so it's UNDERVALUED by over $1100.
3) Inflation is a major concern and the dollar is falling - since 2000, the dollar has dropped 31% in value.
4) Global equity markets are way overvalued and a poised for a tumble.
5) Central banks are monetizing at rates of upwards of 16%, the Fed alone is growing the money supply at 11% annually.
6) Gold demand has been outpacing supply for many years and when the equity markets finally turn down, demand for gold will spike.
7) Adjusting for inflation, gold would have to reach $2300/oz. to equal the all time highs in 1980.

Now is a good time to buy gold.

I think it is. gold is a good hedge against inflation and a devaluing dollar.

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http://www.wealthbuildinglessons.com/200...

Yes and No

Yes= Economists say that gold will rise to usd800/oz at end of 2008. Then, you sell gold and make a killing
No= Gold has been rising since 2001 by 4/5 times. However, it has not been rising steadily now. It occassionally rises and drop. It now more of a " steady stock". But to reap profits, it is best to invest in at least 1kg of gold to break even

Yes...it is at a long term.

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Gold holds it's value ..... the expression is an ounce of gold bought a really nice suit 100 years ago and will 100 years from now. The question is do you want an investment that holds it's value or increases more? Gold is a very conservative imvestment even though it's done quite well recently. It's better than cash and a bank but not as good as even medium risk mutual funds.

Gold prices are harder to forecast than stock prices.
So, unless you intend to get deep in the subject...

Unlike what many people think, gold is getting less expensive -relative to income- each time, altough not in a straight line.

Think about it, how many college students walk around with gold necklaces? Some 30 or 50 years ago, not many people could afford it.