It's been a fun time to be heavily invested in the market. Looking back to 2006 and the collapse that soon followed, the market has never traded at such a value in my lifetime, and may not again. In some places, such as the big financial firms, mortgage REITs and insurers, companies were trading at a nearly 90% discount. In short, what I'm saying is that if you had the temerity to get into the market in 2007 and ride it through, adding positions from 2008-2012 and adjusting accordingly, you made a pretty good profit.
This was thanks in large part to the Federal Reserve's policy of Quantitative Easing (QE), which I've opened discussion on in a thread here. In that thread, I point out that while QE has been a boon to the stock market, it's essentially ruining our ability to save in non-stock assets like Treasury Bonds, Money Market accounts, Certificates of Deposit and other low-risk venues.
Of course, there has been one class of assets where the boom has outstripped even the fire of the stock market. Commodities. Wheat, corn, copper, palladium. Those kinds of commodities. And one in particular: gold. As morefngdbs points out, Gold has jumped from just about $250 an ounce in 2000 to $1750 an ounce today. That's a handy 600% increase.
But there's also a rift here. All metals are essentially speculations against economic uncertainty, and there are two options for how to trade in them: paper (stocks, ETFs and other vehicles that hold gold and let you invest in their holdings), and specie (buying gold bullion and bullion coins directly). I think the former is a fair enough hedge as part of a diversified portfolio. The second, buying coins, borders on the silly.
Why? Premiums and discounts. Gold coinage is tough to turn into cash, and the grocery store doesn't exactly take your bullion coins at face value. You're going to pay between 3-10% premium on the spot price of gold to buy the coins. At the same time, most reputable gold dealers, especially in metro urban areas, offer between 70-85% of spot value in their gold purchases. You're taking a hit either way.
Metals are also prone to shocks. Look at the 20%+ decline in the price of silver over the past year or so, during which time dealers were paying only 70% of spot. Assuming you bought an ounce of silver at $31.50 (spot + 5%) in 2010, watched it rise to $45 in 2011, and now to $32 in 2012, if you sold today you'd receive $25.60 (80% of spot, the going rate in Washington, D.C.). If you sold through an online auction, you'd likely net 90% of spot, but you'd also pay auction fees.
I'd love your thoughts. I'm not saying metals aren't sometimes a good investment. But assuming they're a panacea, a never-go-down investment that will get you away from the risk of the world markets? That's silly.