The February 2006 issue of Money had a short feature on owning gold. George Mannes, “The Answer Guy,” answers a reader's question about how to invest $50,000 in gold as a hedge against the declining US dollar. The response is only luke warm: he suggests Treasury Inflation-Protected Securities and international stock funds as hedges against inflation (a declining dollar), and suggests no more than 5% of one's portfolio should be in precious metals. On direct investments in gold, he suggests an ETF that holds only gold and small amounts of cash as assets. This kind of investing recommends a vehicle that's once removed from investing in gold (gold ETFs track the price of gold, but you don't actually own the yellow) or sidestep gold altogether.
That, and I read auction descriptions for estate lots advertising “Gold Hoard” for a collection of gold coins or bullion. Like owning gold coins conjures up images of a a well-known weaver and miser
Why don't gold get no respect? I want to know.
It's true that gold generates no income, and it's also true that gold has not performed well over the past two decades. However, this isn't the whole story. The fact that gold doesn't generate any income is also its strength: it doesn't answer to anybody! Gold's balance sheet can't be tinkered with by stretching GAAP. Gold smiles at such mischief (with apologies to the folks at the Daily Reckoning). Gold doesn't have to meet a payroll. It just is. And it has been for thousands of years. And, God willing, it will be for thousands more.
Today's price is north of $550/ounce, up almost 100% from a few years ago. To match its high in the early 1980s (when it was $820/ounce) it would have to rise to $1400/ounce just to break even, in inflation-adjusted dollars. In that sense, gold is still cheap.
What do you think about buying gold now?
MBH
I like the article and it is a different perspective.
I am always leary on investing in things that do nothing. If I were worried about outrageous inflation or the stability of the economy I would be more inclined to invest in gold. Gold is the investment of pessimists.
Hi ADD, thanks for the comment.
I suppose "pessimist" is a good description of my attitude toward the dollar, stocks, real estate, etc. It's nice to see that gold is getting a little more attention these days, though it could use a lot more respect.
I like the idea of buying gold now. I guess I'm one of those pessimists that read Empire of Debt or something….
I'm pondering Gary North's advice on how to do this. BuillionVault and the like are one way, but I like the idea of buying gold coins. So Silas Marner, I know, I know.
The best time to buy gold was probably when people weren't talking about it so much.
Gold, like any other thing, has a value based on what other people are willing to pay. That's it, it's nothing special. 🙂
Very true Flexo. Probably the best time to sell is when Time magazine starts talking about what a sure thing gold is.
You need to visit my Contrarian Investing Blog where I regularly write about gold and silver.
However, investing in the metal directly is pretty boring. Even if it makes it to $1000/oz, that's not a very big return on your investment.
To make big profits you need to invest in stocks of mining companies.
Do not buy coins. Buy GLD or IAU