Gold vs. Stocks

[jclay2]

Like all investments gold and stocks will have their ups and downs, their bull and bear markets and what not. Most of you on this forum are in agreement that one should be very bullish on gold. Ok, that is fine and I am not disagreeing with you. What I would like is a gameplan from the people who are bullish on gold. When will you exit the gold play? What do you think the price of gold should really be? What will you invest in after the gold play? What percentage of your portfolio is in gold. I personally don'tthink that precious metals should be more than 20% of your portfolio. Basically, give me direction for what I should be doing with my money and its allocation.

[AceNZ]

I would consider exiting gold when the Dow can be purchased for around 1 or 2 times the price of gold.

Talking about price is difficult, because the dollar, in which prices are measured, doesn't have a constant value. If you use today's dollars, I wouldn't be surprised to see the Dow drop by 60% -- which might mean a price of around $2400 to $4800 per ounce for gold at its next peak.

What to invest in after gold depends on the state of the economy at that time. If it was just another business cycle, stocks would be the next logical choice. If it turns into another Great Depression, and especially if the government tries to "help", then I probably would invest overseas and not in the US.

For asset allocation today, it depends on a lot of factors, including the details of your financial situation (debt, income, housing, etc), the level of risk you're willing to accept, your personal financial goals, etc. Assuming a fairly vanilla situation, something like the following might be reasonable:

30% Gold
30% Agricultural commodities
20% Foreign currencies (in interest paying accounts or highly-rated bonds)
20% Foreign stocks in select industries

If you're new to investing, be careful -- it's easy to make bad mistakes in this market. If you're willing to be a little aggressive, you might let a firm like Peter Schiff's Europac handle everything for you, including asset allocation, stock selection, dealing with overseas stock exchanges, etc.


http://ns9.12titans.net/gold-stock-sm.jpg

[jonahtrainer]

Like all investments gold and stocks will have their ups and downs, their bull and bear markets and what not. ... What percentage of your portfolio is in gold. I personally don't think that precious metals should be more than 20% of your portfolio. Basically, give me direction for what I should be doing with my money and its allocation.

Gold is not an investment. Gold is cash. Right now the best place to be is in cash denominated in gold. Remember, gold is the the risk-free place to allocate capital.

That means if you investments are not beating gold in terms of dollars then why are you taking the risk? I'd love to find investments right now. But I can't find very much to invest in right now so I hold and continue accumulating from my various cash-flow streams lots of bullion in allocated storage (http://www.mygoldmoney.com). In other words, if you aren't getting at least 50% ROI in US$ terms then you are making a foolish investment decision.

[jclay2]

So what is the fair market value of gold right now. In other words, how much is gold undervalued by.

[AceNZ]

So what is the fair market value of gold right now. In other words, how much is gold undervalued by.

The fair market value is, by definition, what it's selling for today.

It's not really that gold is undervalued. Over the long term, it's better to think of gold as a way to preserve purchasing power during a time of high inflation. So it's not so much that gold is likely to go up as it is that the dollar is likely to continue down.

Having said that, it's also true that gold can be considered an investment like any other, and that its price does vary up and down, particularly over the short term. From a timing perspective, it's better to look at the price of gold compared to the price of other commodities, like oil, or compared to stocks, such as in the chart I posted earlier. By both of those measures, gold is relatively inexpensive today.