Royal Mint Gold Investment Performance Chart "Factual Comparison"

[LawrenceChard]

Today's marketing e-mail from the Royal Mint is headed "New Investment Resources: Get Into Gold", and continues:

"Make Your Investment Precious"          

"Trusted for centuries, gold has the potential to perform well during times of boom and bust. Whether you’re looking to trade for short-term gains, or saving up for an experience of a lifetime, investing in gold with The Royal Mint could help you achieve your goals."

The Performance of Gold     
As with any investment, the price of gold can fluctuate, but historically, gold has increased in value over the long term. The price of gold tends to rise in response to events that cause other investments, such as stocks and bonds, to fall. This means that adding gold to your investment portfolio can increase diversity, add welcome stability and improve its performance.     
     
GET INTO GOLD

The chart below compares the annual percentage growth of gold over the past twenty years against cash, property, stocks, bonds and gilts.

As you can see, the chart itself is captioned "Factual Comparison"

While I have no reason to doubt most of this, or the underlying data, I can immediately see 2 problems:

First, there is no indication as to what each investment was measured against. Was it in US Dollars, pounds Sterling, BitCoim, wampum, or what? Without this information, any other part of the "factual comparison" is suspect, rather like building a high quality house without knowing or caring about its foundations. Am I being pedantic? Yes, of course, but if anyone is going to claim "Factual Comparison", they should pay attention to small but important details, or risk disbelief.

My second doubt is related to the near 2% annual growth of "cash". I have had a bag of cash stored in a safe place for the past 20 years, and it is still exactly as I left it, and it has not grown. I guess whoever created the chart might mean something different from actual cash, possibly money deposited in a bank account, but we would have to make a further guess which currency, whether this was current account, a savings account, etc. I dislike having to play guessing games when reading any "Factual Comparison".

I also guess that we might need further information about the "Property", and other items. Perhaps some of this will be disclosed in depth elsewhere, but I would like to know now and at this point rather than having to scrutinise lots of small print later, if at all.

I clicked through to the RM web page, where there was a similar chart, which for some strange reason was presented with each investment presented in reverse order. Is this deliberate to confuse us?, or just muddled thinking by its author. Either way, not exactly confidence-inspiring.

This chart has a caption below it stating:

"Annual Average Percentage Change over 20 years"

I hoped this would specify whether this was calculated on a simple or compound interest basis. My guess is on a simple interest basis, but that exaggerates the underlying actual true interest rate. This would not surprise me as most marketing and advertising people will automatically choose the method which suits their purpose better, possibly not realising this is a dishonest and / or misleading approach, otherwise known as hype.

I suspect many people will believe everything they read because it comes from the Royal Mint, and may therefore invest in gold via the Royal Mint, and as about 99% of TSF members know, there are probably better deals and ways to invest in gold than from the Royal Mint.

I'm trying to remember the name of a well-known UK dealer based in Blackpool. 😎

[Pete]

I think their analysis is biassed for obvious marketing purposes.
It shows gold outperforming property by almost double.
Twenty years ago if you bought a chunk of gold it would have cost you £200 per ounce.
Today it has increased in value by about a factor of 6

I checked house prices in my area and over the same period the price of property has also increased by about a factor of 5.
Maybe taking an average of property prices over the entire country this figure would be a lot less and nearer to their graph.
That's the big problem with selective charts without underlying data as you can always find statistics in various categories with wide exceptions that support or oppositely counteract your argument.
Gold could take a dive of 10% tomorrow but your house is more likely to go up.

[LawrenceChard]

5 minutes ago, Pete said:

I think their analysis is biassed for obvious marketing purposes.
It shows gold outperforming property by almost double.
Twenty years ago if you bought a chunk of gold it would have cost you £200 per ounce.
Today it has increased in value by about a factor of 6

I checked house prices in my area and over the same period the price of property has also increased by about a factor of 5.
Maybe taking an average of property prices over the entire country this figure would be a lot less and nearer to their graph.
That's the big problem with selective charts without underlying data as you can always find statistics in various categories with wide exceptions that support or oppositely counteract your argument.
Gold could take a dive of 10% tomorrow but your house is more likely to go up.

Yes, I suspect there is some bias. Sometimes this is probably subconscious, in that the author believes it, or fails to be aware of it. It may be through ignorance of statistics, lack of scientific rigour in thinking, or a mixture of these and other causes.

Also, I suspect the Royal Mint are parroting or copying information published by the World Gold Council, probably without much scrutiny or thought.

While I tend to have respect for WGC information, it is "an association whose members comprise the world’s leading gold mining companies", therefore anything it publishes should be viewed with that in mind, but not necessarily be disbelieved. It is more likely to publish information positively promoting gold than any with a negative implication for gold.

The WGC styles itself on its own website as "The Authority on Gold".

 

[harrygill111]

Also it ignores leverage - £100k can buy me a property worth about £400k. The same £100k would buy me £100k of gold. 

If the property goes up 5x I have £1.7m equity + some rent on the way. This vs 6x on gold would mean I have £600k in gold + would have paid lots in storage fees 

 

 

Edited October 24, 2021 by harrygill111

[LawrenceChard]

1 hour ago, harrygill111 said:

Also it ignores leverage - £100k can buy me a property worth about £400k. The same £100k would buy me £100k of gold. 

If the property goes up 5x I have £1.7m equity + some rent on the way. This vs 6x on gold would mean I have £600k in gold + would have paid lots in storage fees 

 

 

Good point about the leverage, but then it gets ocmplicated.

Also about the storage. RM charge 1% p.a. plus VAT. Chards charge 0.5% plus VAT.

Property and gold need storing, maintaining, and / or insuring, which further complicates comparison.

[Geovest]

1 hour ago, harrygill111 said:

Also it ignores leverage - £100k can buy me a property worth about £400k. The same £100k would buy me £100k of gold. 

If the property goes up 5x I have £1.7m equity + some rent on the way. This vs 6x on gold would mean I have £600k in gold + would have paid lots in storage fees 

 

 

Ignoring leverage is correct. They are comparing the amount YOU invested and don't include any amount borrowed to invest. You can gear any investment not just property by means of loans, use of spread-bets etc. The only sensible way is to treat them equal  and ignore all forms of gearing in the comparison. 

[Geovest]

7 minutes ago, LawrenceChard said:

Good point about the leverage, but then it gets ocmplicated.

Also about the storage. RM charge 1% p.a. plus VAT. Chards charge 0.5% plus VAT.

Property and gold need storing, maintaining, and / or insuring, which further complicates comparison.

Or you could do some midnight gardening, in which case storage is free 😂

[dicker]

They have been learning graphing skills from the Lib Dems.  

[LawrenceChard]

2 hours ago, Geovest said:

Or you could do some midnight gardening, in which case storage is free 😂

Perhaps, but not free of all risk!

... and then there are metal detectors and metal detectorists.😎

[Foster88]

On 24/10/2021 at 16:21, Geovest said:

Or you could do some midnight gardening, in which case storage is free 😂

I’ve posted this before on the forum but I actually knew of someone who did this.

The garden looked like it has been used as a film set for a new film, called something like “Attack of The Giant Moles”.

He never did find it all. 😕

Edited October 26, 2021 by Foster88