Wednesday, September 21, 2005
The True Price Of Gold: Part Two
To make this simple, I am choosing to price 1 ounce American Gold Eagles. The Kitco site is showing spot at $470 and some change. I go to the US Mint site and they don't have any available, but show a proof price of $720. So maybe these are in special condition.
I do a search for Eagles on the internet and pick a high ranked site. The pricing schedule has the coins selling for $497.90, if you buy 10, which is the smallest number they deal in. That would come to $4,979, and they pay shipping.
I call a dealer about an hour away. He offers spot for up to 10 Eagles. The difference? About $275, or 5.5% of the nearly $5,000 purchase price. A lot better than back when I originally got into this market, but still kind of expensive compared to brokerage fees, etc.
What the gold market has been doing recently is notable as well. At these levels, gold is near a multi-year high in dollar terms, but not in inflation adjusted numbers. Had one bought a $400 coin in the 1980's it would be selling at a serious loss in real terms. Which brings up a point. Isn't gold supposed to out-pace inflation?
How much would my 10 gold Eagles have to appreciate to break even, assuming that my buyer would still give me spot? Spot gold would have to climb up to $526.87, or over $56 from todays numbers. That's just to break even. This analysis doesn't include the opportunity cost of lost interest that could be earned, which is admittedly low, but still adds a couple of percent to be overcome.
As this series continues, my point is to examine why someone should want to own gold, how much is enough, and what to expect if one needs to sell. It is obvious that as an in and out transaction, there is not a lot to be gained. The best reason to physically own gold is as a sort of insurance policy against financial disruption. And like insurance, having too much is wasteful.
I will continue this series tomorrow with a look at silver. Please check back here during the days to come as I will have more precious metal related news and some currency happenings as well.
I do a search for Eagles on the internet and pick a high ranked site. The pricing schedule has the coins selling for $497.90, if you buy 10, which is the smallest number they deal in. That would come to $4,979, and they pay shipping.
I call a dealer about an hour away. He offers spot for up to 10 Eagles. The difference? About $275, or 5.5% of the nearly $5,000 purchase price. A lot better than back when I originally got into this market, but still kind of expensive compared to brokerage fees, etc.
What the gold market has been doing recently is notable as well. At these levels, gold is near a multi-year high in dollar terms, but not in inflation adjusted numbers. Had one bought a $400 coin in the 1980's it would be selling at a serious loss in real terms. Which brings up a point. Isn't gold supposed to out-pace inflation?
How much would my 10 gold Eagles have to appreciate to break even, assuming that my buyer would still give me spot? Spot gold would have to climb up to $526.87, or over $56 from todays numbers. That's just to break even. This analysis doesn't include the opportunity cost of lost interest that could be earned, which is admittedly low, but still adds a couple of percent to be overcome.
As this series continues, my point is to examine why someone should want to own gold, how much is enough, and what to expect if one needs to sell. It is obvious that as an in and out transaction, there is not a lot to be gained. The best reason to physically own gold is as a sort of insurance policy against financial disruption. And like insurance, having too much is wasteful.
I will continue this series tomorrow with a look at silver. Please check back here during the days to come as I will have more precious metal related news and some currency happenings as well.
# posted by Ben Jones @ 12:09 PM 
