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If Gold Were a Hedge Fund, You Could Brag About It
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(January 1, 2007) Gold closed 2006 at $635, up some 23.19% during 2006, rounding out a five-year performance during which prices have more than doubled since the beginning of 2002. The rich pay hedge fund managers huge fees for such performance, but why should you?
It was, to say the least, quite a year in gold. In 2006, gold’s multi-year track record gained wide recognition, threatening even to become an investment fad during the first half of 2006. And as is inevitable when popular attention is focused on an investment sector, prices got ahead of themselves a bit, spiking in May at over $725, only to settle the year at prices nearly $100 south of that level.

And why wouldn’t investors be attracted to gold? Its performance over the past five years has been steadily spectacular. Gold prices in US dollars rose 25.5% in 2002, 19.8% the next year, a mere 4.6% in 2004, 17.7% in 2005, and even after this spring’s spike and correction, gold achieved a jump of 23.19% during 2006. As they say, what’s not to like?

If gold were a hedge fund, its participants would be delighted. Gladly they would be forking over some 2% in annual fees, and paying the fund managers their split of the gains, general averaging about 25% of the year’s gains. And still they would be bragging to their friends about the terrific hedge fund that they got in on.

But over the past five years, they could have instead bought gold bullion and gotten the same gains, without paying an annual fee and percentage of the winnings. And, of course, without Uncle Sam having his hand out for a cut.

For instance, an investment of $100,000 in physical gold bullion five years ago would be worth some $228,000 today. Storage is inexpensive, and tax considerations are very simple: no matter how much gold grows in value, there are no capital gains unless someday you decide to sell some.

In short, gold has been a steady, simple, tax-efficient investment here in the 21st century. If gold were a hedge fund, you’d be bragging about it.

“Probably in all ages of history men have liked money, but a hundred years ago they did not talk about it in society...” – G.W.E. Russell, 1901

Yes, supposedly there was a time when money was not a socially acceptable topic of conversation, except with your stockbroker, banker, or insurance agent. In those more genteel times, making party chatter about your portfolio of stocks, bonds, funds, or the price you paid for your house was strictly verboten.

Of course, everybody talks money today, even though Emily Post would take umbrage. But mention gold, that most efficient and recently efficacious of investment vehicles, and you will stop a conversation dead.

On the other hand, the worst that can come from your bragging about your terrific hedge fund is that such talk may induce boredom or inspire a game of “I Can Top That.” With hedge fund investing today probably at its zenith of its popularity (where can hedge funds go from here, but down?), you’re at least on topical and socially acceptable ground.

But talking about the investment gains in your growing pile of gold bullion is still just socially gauche behavior. The simple fact is, most people don’t own gold, many of them because they simply can’t afford it. And to some, gold investing resembles hoarding, and carries a hint of miserly behavior about it. They don’t want to hear about it.

Building true wealth with gold will always be a private endeavor. No matter how efficient gold investing is, and no matter how well it serves you financially to own gold in this world of modern fiat money, you’ll probably want to keep it a secret for reasons of etiquette, security, and common sense.

No brag, just fact

 

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