I want to have some exposure to gold and silver even though I think their benefits are often oversold. I don’t hate gold or silver. The one asset I actually hate is non-interest earning cash (not to be confused with interest bearing cash). For example, I have several bank accounts that I want and need to keep, but they pay nearly zero interest. I have about $30K in cash that is just earning almost nothing even in a 5% interest environment.
I could move the funds but I like everything else about my banks. But to make myself feel better and as though that money is being invested I am on paper combining that cash with a small brokerage account and targeting investments at 1X leverage overall. So the brokerage account may on its own be at 10X leverage but the combination needs to be at 1X. I want to evaluate whether gold futures or options offer a better solution for a portion of this account.
I am not that into holding gold or silver permanently, per my previous post. However, sometimes when I get a stock tip or recommendation, I will buy a little of something even if I don’t expect it to do well. It can be a good motivator to follow along. Someone I know keeps sending me crazy predictions for gold and silver. In one of the predictions they sent the person claimed to be 99.9% sure that silver would go to $600 an ounce in 2024 (link to video timestamp). Now I am about 99.9% convinced that this guy is dead wrong. He was pretty wrong about his precious metal predictions that silver would go to $100 in 2017. But I thought it would be fun to follow along!
So today I decided to buy a little bit of gold and silver exposure via options. I didn’t want to tie up a lot of capital with this. So, I decided to use options. This allowed me to lay out about 1/10th the capital. The downside though is that if gold and silver don’t move up by about 10% then I am going to lose nearly all the money I put down. I need each of them to appreciate about 10% over the next year to break even. So, if this guy is right, which he isn’t, my little bet of about $1,600 on silver would become worth about $50,000! Too bad Bo Polny isn’t going to be right and the markets are not predictable based on time cycles or the Bible or prophecy. Instead of wasting a lot of money on the predictions he and Andy Schectman are making I will keep most of my money invested using my algorithms that have been doing great.
This is not investment advice for you. This website is designed to talk about investments but it is not designed to give you personalized investment advice. This site contains generic information that does not have the capability of taking your personal risk tolerance, goals, assets, or other factors into account. Therefore, this site and all of its related content is for entertainment, informational, and educational purposes only.
The owner of PatienceToInvest.com is also a trade leader on Collective2.com. We may receive compensation by promoting some collective2 strategies over others. Should you decide to make or avoid any investments or use any service due to the information on this site or related information you assume full responsibility and risks and will not hold howiinvest.com it’s associated sites or its owners responsible. You also acknowledge investing is risky and can result in the loss of all your capital and even more than your original capital in some cases.
Gold has been used as money and an investment for thousands of years. It is understandable that people like it, want to hold it, and expect it to increase in value. I expect gold to continue to increase in value in the future. However, I generally think people should taper their expectations of gold and silver. I think it is far from the best long term investment.
Pick the Best One
If you could only own one of the following which would you rather own?
All the gold and silver in the world.
All the real estate in the world.
All the companies in the world.
For me it is all the companies in the world. Real estate is number two. Gold and silver come in last for me because they are non-productive assets. Take a chunk of gold and put it in your desk. Come back 10 years later you will have the exact same amount of gold (assuming a secure desk). It will be worth more money most likely, but that is primarily because cash has become worth less and there are more people on earth. The gold bar did not grow in size or have little baby gold nuggets. It stayed how it is.
Instead imagine you put a few shares of some companies in your desk and walk away for ten years. When you come back you have those same shares. They too didn’t have little babies of paper, but what the shares represent may have grown. Had you put a share representing 1/10 of Apple in the year 2001 or 1/10th of Amazon you now still own just 1/10th of those companies, but those companies are way more valuable than they were 10 years prior. Now those companies own real estate, contracts, new intellectual property, manufacturing facilities, shipping facilities, they even own probably some gold and silver needed for their business operations and manufacturing. Businesses are productive assets. They can evolve into more in the future than they are today. Of course, many businesses fail. So it is best to diversify across many of them. Even when you take into account all the businesses fail the historical results for businesses are much better than gold.
Proof in the History
If we look at American businesses on average and compare them to gold over the last 100 years the picture is pretty clear for me.
$20 Invested in 1924 held until 2024
Gold went from $20.68 to $2046 – an annualized return of 4.7%
A market cap weighted investment in US stocks went from $20.68 to $412,000 – an annualized return of 10.4%.
My View of the History
For years gold was mostly flat until the early 70s. This is because the US had tied the dollar to gold. The price was set. When Nixon ended the gold standard we see a massive run up in the price of gold until about 1980. In my view this is because gold had been kept artificially low in this system. However, after the wild decade of the 70s it took about 30 years for gold to make a new all time high. Furthermore, if you adjust gold for inflation since 1980 it has barely made a new all time high.
Gold adjusted for inflation.
I think gold is a reasonable asset to hold in certain times particularly when there is extreme turmoil in markets or currencies. However, I think certain promoters of gold such as Peter Schiff, Bo Polny, Andy Schectman, Robert Kiyosaki, and the like tend to oversell golds and silver benefits and undersell the risks. Again, gold and silver may have a fantastic year this year or next year etc. At times I am a buyer of them. So if this year happens to be like the 70s that is great, I will start to buy it if the trend seems to be good enough for my metrics. I won’t just hold it forever personally, though I certainly think is is better than non-interest bearing cash.
History of Silver
As you can see below the performance of silver compared to stocks is somewhat similar.
Gold and Silver ETFs
Finally, I want to touch on the claims of some experts that you shouldn’t buy gold or silver ETFs since they are not real gold and silver. Many gold and silver ETFs do by law have to hold physical gold and silver in reserves. I think there are many benefits to this from ease of use, entry, exit, taxes, etc. It also makes you less of a target for robberies or other very real problems. If you do have a total breakdown of society where law and order are not to be found then yes you may have a case for holding physical gold and silver. However, at that point I think your best bet is to flee to another part of the world that is safer than where you are. Doing so with massive amounts of gold and silver on your person isn’t risk free.
Economic Crash
During many stock market crashes gold does fantastic. However, catching something like this is largely a matter of timing, which is notoriously hard to do. Take for example buying gold at the very beginning of 2008 then holding it for five years. It crushes the stock market.
It isn’t hard to imagine a person at the beginning of 2009 now saying, “dang I wish I would have bought gold!” So then they buy gold at the beginning of 2009 after the crash has happened. What happens though if you bought gold at the beginning of 2009 and hold for five years? You lose to the stock market. You miss out on about 80% of gains.
But then you decide to wait for the next crash because gold treated you well last time. So you hold for another five years from 2014 to 2019. Again you lose rather drastically to stocks.
This hypothetical example unfortunately is all too real for many investors whether they be into stocks, gold, silver, apple, amazon, meta, foreign stocks, domestic stocks, etc.
And for good measure here is gold vs us stocks for 2019 through 2023.
How I Use Gold and Silver
In the long term averages gold and silver simply haven’t performed as well as owning companies, and as mentioned I think this is because stocks represent companies which can evolve overtime unlike commodities. Commodities do experience fantastic moments. Oil futures at -$35, yes please. Gold after decades of a fixed price, yes please. Silver during a short-squeeze in the 80s – oh yeah baby! Unfortunately, most of the time on average commodities whether they be gold, silver, oil, wood, grain, are not productive assets. Often they cost money to store! They are fantastic in a pinch but the timing has to be right, which is notoriously hard.
Therefore, I primarily only hold gold, silver, and other commodities as a smaller diversifying portion of my assets, or I may allocate a higher portion. I only put them as a larger portion though if they are in an uptrend more so than other assets such as stocks, bonds, crypto, volatility products, etc.
As of writing this I have had a roughly 30% annualized return over the last 5 years. If I were to have held gold for the last 5 years as the majority of my portfolio that simply would not have been possible. I may come to eat my words in the future. Silver could have a huge short-squeeze or gold could become the most popular asset. If this does happen I hope to catch a decent portion of that move, but I know I won’t catch all of it. I’m okay with that.
To create these charts I used the SPX index from tradingview and the dividend yield of the S&P 500 from the tradingview source QUANDL:MULTPL/SP500_DIV_YIELD_MONTH.
This is not investment advice for you. This website is designed to talk about investments but it is not designed to give you personalized investment advice. This site contains generic information that does not have the capability of taking your personal risk tolerance, goals, assets, or other factors into account. Therefore, this site and all of its related content is for entertainment, informational, and educational purposes only.
The owner of PatienceToInvest.com is also a trade leader on Collective2.com. We may receive compensation by promoting some collective2 strategies over others. Should you decide to make or avoid any investments or use any service due to the information on this site or related information you assume full responsibility and risks and will not hold howiinvest.com it’s associated sites or its owners responsible. You also acknowledge investing is risky and can result in the loss of all your capital and even more than your original capital in some cases.
How I Invest 