Despite Strong Track Record, Gold And Silver Are Not “Investments”

By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com …..

Many people consider the ownership of precious metals to be an investment.  They are not.  Still, compared to many investments, gold and silver have outstanding track records for the past thirteen years.

In my mind, the major purpose of owning physical gold and silver is for insurance against the calamities that hurt the value of paper assets such as stocks, bonds, and currencies.  People don’t consider insurance on their life, their health, their home, or their car as “investments” because they are not.  Insurance is protection against the risk of negative events that might happen.  Insurance is not an asset that is bought or sold like an investment.  Instead, you either have insurance or you have greater risk.

financial Insuramce Despite Strong Track Record, Gold And Silver Are Not “Investments”For thousands of years, physical gold and silver have proved to be reliable forms of money that have never failed.  The performance of other assets such as stocks, bonds, and fiat currencies are measured against a monetary unit, with gold and silver being the most reliable indicator over history.  Over the long term, that means that gold and silver have performed their insurance purpose better than any other assets.

However, most Americans still think in terms of how their investments performed relative to the US dollar.  A quick review of how some financial indicators did for the year 2012 and for the thirteen year period ending December 31, 2012 is enlightening:

Asset Performance Indicators

Asset or Index 2012 Performance 2000-2012 Performance
Frankfurt Xetra DAX +29.1% +9.5%
Tokyo Nikkei 225 +22.9% -3.8%
NASDAQ +15.9% -25.8%
Mint State-63 US $20.00 Liberty +15.0% +289.8%
Russell 2000 +14.6% +68.3%
S&P 500 +13.4% -2.9%
Platinum +9.4% +261.3%
Silver +8.3% +457.9%
Palladium +7.3% +60.0%
Dow Jones Industrial Average +7.3% +14.0%
Gold +7.0% +481.0%
Mint State-63 US $20.00 Saint Gaudens +6.4% +286.0%
London FT 100 +5.8% -14.9%
US Dollar Index -1.4% -22.2%
Mint State-65 US Morgan Dollar, Pre-1921 -3.0% +73.9%
Interest Rate on 10-Year US Treasury Debt -6.3% -72.7%

As you can see, gold, silver, platinum, and palladium all rose versus the US dollar in 2012, even though some analysts are claiming that precious metals performed poorly in 2012.  Some of these same analysts are touting how well the Dow Jones Industrial Average (DJIA) performed in 2012, despite the fact that platinum, silver, and palladium all rose by a greater percentage for the year and gold rose close to the same extent.

The only reason that gold and silver can be knocked for their 2012 performance is that they are well below their average return over the past thirteen years.  On an annual basis, the price of gold as measured in US dollars has increased thirteen consecutive years, which is a track record unmatched by the other assets in the above list!

Here are the top five performers over the past thirteen years from the above list:

  1. Gold
  2. Silver
  3. Mint State-63 US $20.00 Liberty
  4. Mint State-63 US $20.00 Saint Gaudens
  5. Platinum

Gold and silver have achieved these chart-topping long term results even in the face of US government and other central bank efforts to suppress those prices throughout the past thirteen years.  The mountain of evidence of this manipulation grew larger in December.  In a speech, Edwin M. Truman, the former US Treasury Assistant Secretary for International Affairs and also a former Federal Reserve official, admitted that central banks shared supposedly “confidential information” in recent years to coordinate the suppression gold prices.

Global financial instability, which is the underlying reason why gold and silver prices have been strong over the past thirteen years, is now worse than it was at the end of 1999.  Just look at the so-called solution to the US government’s “fiscal cliff” where the politicians are increasing future budget shortfalls while pretending to the public that they are reducing these deficits.

It gives me no pleasure to report that you can pretty much count on politicians to continue the destruction of the US dollar and economy.  For your self-protection, do you already have your insurance positions of physical gold and silver?

pat heller Despite Strong Track Record, Gold And Silver Are Not “Investments”Patrick A. Heller was honored with the American Numismatic Association 2012 Harry J. Forman Numismatic Dealer of the Year Award.  He owns Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects.  Past newsletter issues can be viewed at http://www.libertycoinservice.com.  Other commentaries are available at Numismaster (under “News & Articles) .  His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.

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11 Comments on "Despite Strong Track Record, Gold And Silver Are Not “Investments”"

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  1. Houston Roy says:

    You are right, people confuse the terms “asset” and “investment” An investment is a owned claim on future income (interest, dividends, royalties, rent). An asset is is anything capable of being owned that has value (a house, car, gold, an insurance policy, cash, etc. that doesn’t produce income). Both can be tangible or intangible, bought or sold or mixed.

  2. Marcus West says:

    Why not both? A house can be a place to live and also an investment.

  3. V.Kurt Bellman says:

    Why does there have to be ANYTHING that assets are ultimately measured against? Why does there have to be ANY denominator in the fraction. Why does there have to be ANY yardstick? Are not ALL assets equally placeable in the numerator or the denominator?

    I know this is a very tough way for a lot of people to think about assets and economics. The existence of a fixed standard to measure against is at some level reassuring to many people. It’s familiar. It’s at some level “comforatble”.

    But the world of physics had to get used to what is called “relativity”, where not time, space, or anything else is fixed. Might not it be true that assets are also “relativistic” in nature? Does there have to be any fixed yardstick? I’ve decided long ago that this is the true nature of economics, and it is indeed scary for “economic Newtonians” to think “Einstein-like” in economics.

    I submit that it is precisely this lack of any fixed yardstick that allows professional traders using software to instantly detect market values that are “sure winners” die to imbalaces and trade accordingly instantly and nearly secretly.

    It is this special access to such information that has rigged nearly all asset trading against the small trader/investor. Cyber trades of combinations of assets that guaranteed winners are only available to the few.

  4. Micro says:

    I think I agree with Marcus. There is no reason that precious metals can’t be viewed as both an asset and an investment. An investment can also be an asset that is held with the hope that it will appreciate in value, and this fits with my motivation to hold PM’s.

    • Houston Roy says:

      Marcus and Micro are both right. All investments are assets. Some are only a claim on future income, such as stocks, bonds and patent royalties. Some are “mixed”, a rent house, gold, art, cars, oil royalties. Some assets mix depreciation and income, real and personal property, or produce capital gains/losses. An owner occupied home, a silver dollar or cash in your pocket all do not produce a stream of income. They are great to have. They might produce a capital gain/loss at sale. I suspect Mr. Heller would suggest the dollar bill in your pocket is producing a capital loss as it is depreciating. Some assets are of trivial or no value. No value/trivial value assets do not produce an income stream, such as a counterfeit gold coin, the fire insurance policy on your house, your baby book, your trash. They are all important. Your motgaged home, car, apartment house or industrial equipment are assets to your bank and a liability to you. All may or may not produce income, losses (depreciation) or capital gains/losses at time of sale or disposition. The taxation, income, ability to serve as loan security and the government’s treatment are the distinctions here. The purchasor/seller’s needs are primary. We need to enjoy life, manage risk, live in comfort, and reduce our taxes by selecting the proper assets to own. Mr Heller’s admonitions and opinions relate to the managment of risk.

  5. Micro says:

    Houston, I think we are in complete agreement now.

    Mr. Heller, thank you for your regular articles — they are thoughtful and specific enough to help us better deal with the debasement of our fiat money.

  6. V.Kurt Bellman says:

    But gentlemen, more to the point:

    If you invested ONLY in each of the below assets in 2012, your return would be as follows:

    Dow index fund (INDU$) – 11.19%
    S&P500 fund (dividends reinvested) – 11.53%
    Gold bullion – 1.89%
    Silver bullion – 4.94%

    Yeah, those crummy paper investments sure are a bad idea, aren’t they? Pffft.

  7. Houston Roy says:

    Kurt: No intelligent investor would only invest only in one asset class. The point here is that an broad allocation of assets and investments are the proper way to mitigate risk, with some groups going up and some down. These would be an example: real estate, including a home and rental property, US stocks, non-US stocks, bonds, including treasuries, TIPS & non US dollar bonds, with 5% gold/silver as comodities. Many investors consider gold an additional “Insurance Policy” with a 5% -10% allocation. Insurance (life, health, fire, flood, loss & damages) is an important element of risk mitigation. You are correct that buy/sell spreads are an important consideration. Homes, commercial real estate, antiques, rare collectables and art all have high buy/sell spreads, some much higher than gold bullion.

    • V.Kurt Bellman says:

      Yes, Houston, we do NOT have a problem with what you wrote. Further, and Patrick deserves credit for this, if one does want to get into and out of physical bullion at among the lower buy/sell spreads available, one could do far worse than doing business with Patrick Heller. His spreads are smallish and fully transparent, and he has not ever been acused of baiting and switching as some of his competitors have been, including some of the biggest and most well known.

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