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Some disadvantages of gold go away if you keep it abroad.

Posted by John Reed on

The highest gold price per troy ounce adjusted for inflation was $2,450.18 in January, 1980. Second highest, August, 2011, $2,264.83. Today: $1,967. That means the fear of inflation is up there among the highest it has ever been.
The average long-term (220 years) price of gold adjusted for inflation to 2011 dollars is $500 according to Forbes magazine.
What is the future of gold? I cannot put dates on it. But here are a couple of facts:
• Hyperinflation fear is what makes the price of gold rise above $500 in 2011 dollars. Gold pays no interest and it is not a growth stock. If the Fed found and followed a formula that eliminated inflation, gold would be priced solely by its industrial uses.
• Hyperinflation always ends and it always ends overnight.
• When the fear of hyperinflation passes, on the day after it ends, the price of gold will fall to BELOW its average long-term real price. In other words, around $300 or $400.
So, if you buy gold now, and keep it until current inflation ends, you will get killed financially by the post-fear fall. If you own it, you are implicitly saying that you can get out in time to avoid that. That is called “market timing.” If you google that phrase, you will find it is a mythological strategy. No one has ever been able to do it on purpose, only occasionally by luck.
Gold is not a hedge against inflation because it is gold. It is a hedge against inflation because it is a commodity. Are all commodities currently overpriced?
No. Only gold is that overpriced. You should buy the commodity that is priced lowest in relation to its long-term average real price. That is probably currently circulating US pennies and nickels. Commodities in coin form have the advantage of not needing an assay when you sell them.

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