The often quoted highest price ever paid for an ounce of gold, achieved in 1980 when everybody wanted out of the stock market and everyone wanted to buy gold.

If you had sold your gold then and bought stocks and held to today, you would be pretty well off. Being a contrarian can be a good thing. Today, early in the year 2000, the opposite trade might be a good idea ...

Update 17th April, 2002
As I wrote the above the price of gold was about US$270 per ounce and the NASDAQ composite index was around 4000. Today, the price of gold is near $300 and the NASDuck index has fallen to about 1800. The S&P index has similarly fallen from above 1400 to today's 1128.

Michalak, I'm sorry but you're wrong in predicting that the price of gold will not go above US$400/ounce in the next 25 years. I also hope that you didn't hold your tech stocks all the way down from their bubble high prices of 1999-2000. By the way, I expect further downside to those same stocks even from today's price.

You can quote me - eventual bottom for the NASDAQ composite index for this cycle is going to be below 1000.

Perhaps this could be a good time to buy gold and sell stocks. However, it is not clear if the current price of gold (less than US$300/troy oz A.D. 2000) is due to cyclical demand changes bottoming out the market or if this is a more long-term adjustment. Also it seems from historical trends that investing in gold is not a good strategy unless an investor is desperate to hold value, rather than to try and gain value. Gold is a commodity; it does not earn money in of itself because the invested money does no work. It can only "earn" money if the price of everything else falls relative to gold.

I have read about a new process for the extraction of gold dust from very low-grade ore, such as the tailings from older operations. This process is of such efficiency that the price of gold fell by around 1/6, from US$384.17/troy oz in A.D. 1995 to an average of US$331.02 in 1997. The further decline in the price of gold was due to national governments deciding that gold was no longer a good asset to hold. In particular the Bank of England has sold off large amounts of gold resulting in a further decline to US$278.88/troy oz in 1999. What does this mean? It means that there are quite a few signs that gold is not going to return to the same level of scarcity/demand that could produce a price of US$800/troy oz.

It is also possible that given the current capacity for the production of gold that even should cyclical demand rise (because of a recession) that the price of gold will not rise sharply. Unless inflation gets out of control again I doubt that gold will go above US$400 in the next 25 years. Because of this and the fact that gold is not a productive investment I think a better strategy is to invest in stocks and bonds for the long term.

Also note that the quoted price of US$800/troy oz was a one time high. The average for 1980 was US$612.56, so unless you picked the exact right day to sell it would not be easy to get that high a price.

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