Higher gold price not really a profit

 

February 1, 2018

Pat Heller

 

Last week, the Professional Numismatists Guild released an informal survey of its Accredited Precious Metals Dealers of their forecasted gold, silver and platinum prices for the end of 2018.

The results are available at https://pngdealers.org/dealers-see-1460-gold-at-years-end-reports-professional-numismatists-guild/.

The headline of this survey, for which 25 responses were received, was that the average forecast was for gold to reach $1,460 or more by Dec. 31. The average forecast for silver was around $20, and for platinum it was $1,150.

I was one of the 25 respondents to this survey. My forecasts were gold at $1,535, silver at $30.70 and platinum at $1,325. My prediction was one of three received that were above $1,500 for gold. My forecast for silver was the highest among all the respondents. At $1,325, my projection for platinum was higher than average, though less than the top estimate of $1,400.

Making predictions of exact prices is extremely treacherous, but that was called for in this survey.

To the extent that precious metals prices do rise over the course of this year, it is best to understand that they don’t really represent making a profit from owning them. Ultimately, the prices of precious metals reflect declines in the value of fiat (paper) currencies. In the long term, owning precious metals is a way to preserve wealth rather than necessarily being a way to realize an outright gain.

To give you an example: in 1928, a good quality men’s suit could be purchased for $20, whether paid with a $20 Federal Reserve Note or a $20 gold Saint-Gaudens. Today, a high-quality men’s suit would cost more than 50 of the Series 1928 $20 Federal Reserve Notes. But you could still obtain it for the value of the $20 gold Saint-Gaudens.

Understand that you didn’t make a profit from the Saint in making such a purchase today, you simply preserved the purchasing power of your form of money.

Rising precious metals prices are almost certain to be accompanied by generally increasing consumer prices. If gold, gasoline, milk, or bread prices were 10 percent higher at the end of 2018 than they are now, your gold would have just kept pace, not yielded a profit on top of that.

So, my predictions for higher precious metals prices at the end of 2018 is also a prediction for noticeably higher consumer prices at the same time. If you simply think of your precious metals holdings as wealth insurance that preserves your purchasing power, you will have a better understanding of the economy than if you were to think of the higher prices as profits.

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