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PhD asked in Business & FinanceInvesting · 1 decade ago

Would buying gold in 1970 have made me rich?

Is it true that if I bought gold in 1970 and sold it now, I would have made a lot of money? I ask this because if you look at the price of gold per troy ounce in 1970, it was $35, and now in 2010, it is $1135. That's an increase of $1100!!! If I bought say, 50 ounces of gold back then, I would have gained $55,000 .

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  • 1 decade ago
    Favorite Answer

    Well yes and no.

    YES, you would have made $55000 -- assuming that 40 years ago you had: an extra $1750 to (a lot of rent money!) and 40 FULL years of patience.

    But NO, it's not a real $55,000. Remember, 3-4% of growth is simply inflation (and during the 1980s MUCH higher). So the "growth" of $1750 due to inflation should be subtracted from $55000 -- simply because $1750 is much weaker in 2010 than it was in 1970.

    Similarly, consider other comparable investments you woulda-coulda-shoulda made, and you'll see that it's not really $55000 that you'd have made, but some extra thousands over weaker investments. I just hope the $1750 didn't end up in a 0% checking account or under the mattress...

  • Mike
    Lv 6
    1 decade ago

    That is any OK investment but not fabulous. The real return is 7.25% annually when compounded which is probably fairly decent during many years but you have to remember that during the 1980s there was high inflation and 30 year risk free treasuries hit an interest rate of 15.19% annually in September 1981.

    Therefore if you would have purchased a 30 year treasury bond in September 1981 and reinvested the interest, you would have been much further ahead in the 29 years since you purchased the bond then the 50 years that you held the gold.

    Even if you haven't purchased a 30 year treasury at the peak in 1981 and would have purchased bonds anywhere between 1977 and 1997, you would have still made out at least as well (usually better) annually since 30 year treasury bonds were paying between 7.25% and 15% annually at that time.

    http://finance.yahoo.com/echarts?s=%5ETYX+Interact...

    The reason that you have to calculate the real gain of gold by compounding is that you must leave the full amount invested in the gold continuously to achieve that total return and therefore gain is made on top the previous gain.

    When calculating the interest from a 30 year treasury, it isn't compounded (just simple interest) since the government pays you the interest annually. However, by reinvesting that interest, you are compounding that gain.

    For example on a 30 year bond that pays a simple interest of 15%, the government will return you 4.5 times the amount that you invested in interest over 30 years but if you were able to reinvest those interest payments at 15%, you would have a total return of 66 times your original investment after 30 years compared to 34 times for gold over 50 years. The reason that occurs is that if you reinvest the interest at 15%, the amount of your investment will double about every 5 years.

    The following table would show you how a 15% rate of return will increase over 30 years when it is reinvested at the same rate.

    Initial investment equals $1,000

    After 5 years: $2,011

    After 10 years: $4,445

    After 15 years: $8,137

    After 20 years: $16,366

    After 25 years: $32,918

    After 30 years: $66,211

    The following table would be the return on gold at 7.25% over 50 years (assuming that it grew the same percentage each year).

    Initial investment equals $1,000

    After 5 years: $1,419

    After 10 years: $2,013

    After 15 years: $2,857

    After 20 years: $4,054

    After 25 years: $5,753

    After 30 years: $8,164

    After 35 years: $11,585

    After 40 years: $16,439

    After 45 years: $23,328

    After 50 years: $33,102

  • 1 decade ago

    Would you have made a lot of money with gold? It depends on what you call money. If you think that the paper money is real money, then yeah, you would have lots of paper. But some people think that GOLD is real money and paper money is just a scam. If you had bought 50oz gold back in 1970, then guess what! Today you would still have 50oz of gold. Did you get any richer? Actually NO, because of inflation. Over time, wages and prices go up. So, if you want to increase your wealth, then your money has to grow faster than gold.

    If you had invested in Home Depot, 3M Corp, or Wal-Mart back in 1970, you would have made much more money than by buying gold.

  • 1 decade ago

    You couldnt own gold in 1970. And the price was frozen at 35 dollars a troy ounce. But if you could have owned it you would have been rich in dollars . But the purchasing power of those dollars would probably remain about the same.

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  • Anonymous
    1 decade ago

    If you would have invested in 1,000 shares of Wal-Mart stock in 1978 (first year available) at 10 cents per share you would now have $510,000

    If you would have invested in 1,000 shares of Microsoft stock in 1987 (first year available) at 34 cents per share in year 2000 you would now have had $200,000

    If you would have bought 1,000 shares of Ford in Fall of 2008 for $1.80 you would now have $6,400

    1 share of Berkshire Hathaway in 1991 for $5,875 you would now have $118,100

    The point being, there are countless ways to make money over the years. Gold is one, but certainly not the only and not the best.

  • 4 years ago

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  • Bhau
    Lv 4
    1 decade ago

    But if you have invested in good shares, It would have been many fold than Gold.

    As good as 5 times!

    Gold is very steady investment just like FDs! 10-15%

    Shares may give 25-35% in long range like this (40 years).

    Only you have to see that you invest more when market is medium!

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