…from Armageddon. Or a weak dollar. Or its own “meltdown”. It’s quite impossible nowadays to make it through a week without either hearing about 1.) how great of an investment gold is. 2.) How gold’s value only goes up. 3.) The big bad “inflation” is going to hit and you will want to have gold then. Or, my favorite, 4.) if everything goes bad and our government collapses the thing you’ll want is gold!
Let me start by saying that gold is not our economic savior. It’s not necessarily an awful investment…it’s just not that great of one. I will work backwards…
4.) If everything goes bad and our government collapses the thing you’ll want is gold!
Nope. You’ll want eggs, maybe some bread, canned goods, a Swiss army knife, some of your Y2K gear... actually, better than eggs, a chicken. If our government collapses, the last thing you will be excited about is having a stockpile of gold in your basement. People will not want it. What are they going to do with it? In that type of world there is no value in a bar of gold. Worse than that is a bunch of “gold” that you have invested in the stock market, because you won’t really have anything palpable. Let’s just say this is a poor reason for buying anything other than maybe a bunch of ammunition and a shotgun.
3.) The big bad “inflation” is going to hit and you will want to have gold then.
Well, this actually has some truth in it. Investors typically run to gold as inflation goes up in America because it doesn’t necessarily have a positive correlation with the dollar. Usually it holds it value while the value of paper money, the dollar, loses worth. Gold is a safety net and investors run to it when they are scared. However, the value of gold itself has been “inflated” by the oversaturation of the investing thrown into it. Also, there is no indication in our economy that inflation is going to hit any time soon. In fact, minus food and energy inflation is the lowest it has been since 1957.
Oh, and inflation isn’t necessarily bad, but that’s a different article…
2.) Gold’s value only goes up.
Really? Umm, No. Recently, the value of gold actually has gone up, A LOT. About five years ago, gold traded at around $500 an ounce and now it is over $1400, that’s a 23% annualized return. Which is pretty outstanding and you can see why you might be hearing about it all the time. The main force behind this great gain in value is fear, and there has been a lot of fear the past few years. However, the market and the economy will get better, if you haven’t been paying attention it already is, and then, feeling more confident, investors will move out of their safety net in gold, causing the value to crash. Just like in the late 90’s with the dot.com crash, while very lucrative for a time the good days can end very painfully. Call it what you will, maybe it’s not the same type of bubble as others in the past, but….there is a gold bubble. And what goes up, must come down.
1.) How great of an investment gold is.
Ok we already lightly covered this, but gold isn’t an awful investment, it’s just not a great one. It may have high returns but it also has very high risks. Especially at this point in the game, the risks are great. Financial industry gurus such as Warren Buffet won’t even touch it, and if they do its very minimal. In fact, most respected hedge fund managers and financial planners recommend putting no more than 1% of your TOTAL portfolio into gold. And that is only if you can’t resist its charms completely.
If you’re wanting to buy that special someone something shiny and pretty, or just have a strange desire to be a Spanish conquistador, gold is for you. Looking for an investment? Think twice before going into gold, maybe even thrice.
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