Gold as an Investment: A Gold Rush or Fool’s Gold?

by RC on February 5, 2009

Gold CoinThere’s a whole lotta talk about GOLD these days. “Save yourself from the eroding value of the dollar” and “combat inflation” are two common refrains. As much talk as there is of a total global economic meltdown, and gold being a protection against a massive loss of wealth, it’s almost enough to to make a regular person, who might normally not even think about investing in gold,  wonder if gold is something they should consider. But before you run out and start buying gold ETF’s in your retirement portfolio or gold coins, you should think carefully about what is really going on.

A few things to consider:

Adjusted for inflation, the price of gold peaked around 1980, at about $2300 per ounce.

Even at $900+ multi-year highs over the last year or two, gold is still less than half of what it was worth in 1980, adjusted for inflation. As a long term investment, it is a money loser. I don’t know about you, but 1980 was a long time ago. Gold had a tremendous run between 1971 (when the US went off the gold standard) and 1980, but it hasn’t kept pace with inflation since then.

Gold will not be used as a means of trade should there be any type of financial or political collapse.

Do you really think that your neighborhood grocery store is capable of conducting transaction, should you have your hands on a few gold coins or a vial of gold dust? Do you think they would know how to value it or even tell if it was real?

If you are just trying to make a guess for the short term, good luck.

I mean, when is anyone really right? Can you or I predict the stock market or any other commodity price and where it is going to be in 6 months? Did anyone think, last summer, that a barrel of oil would plunge to the low to mid $30 range? I know I didn’t. Many talking heads were predicting $200 per barrel in the near future.

My point is, don’t take arguments for any investment, whether it be gold, the stock market, or other commodities at face value, especially due to fear or worry. If you think gold is going up, and invest in it, you are really betting that it will go up or stay the same (as a hedge against inflation). It’s entirely possible, but it may not be for the same reasons you might think now. I don’t think there is anything wrong with having a modest amount invested in gold or any other commodity, but I also don’t think investing in gold is going to save me from financial ruin, either.

Creative Commons License photo credit: Velo Steve

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{ 4 comments… read them below or add one }

Joe February 5, 2009 at 1:04 pm

I’ve many of the same arguments myself in the past, and every time I get at least 1 response to the effect of, “But gold coins are real, and truly beautiful!” Such arguments usually make me wonder at how people can be taken in by something because something is shiny and attractive to look at… :-D

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RC February 5, 2009 at 1:47 pm

@Joe- Good point, and funny too! They are pretty to look at! I am not sure what a “gold bug” would suggest we do though-sell all of your investments and buy gold? It seems to much like predicting the bottom of the stock market, trying to time the market.

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Moses February 14, 2010 at 7:08 am

Gold, like any asset, runs in cycles; there are times to be a buyer, and there are times to be a seller. In the past decade, gold has gone from roughly $250 dollars and ounce to $1,000 dollars an ounce. During the great bull run in the 70′s, gold went from $35 dollars and ounce to $850 dollars an ounce- increasing over 20X in the process.

Gold is money, period. It’s ironic that “paper bugs” try to make out “gold bugs” to be ignorant people who simply love to stare at shiny little gold coins. Gold is in the news, yes, but the average person still thinks it’s a bubble! The fact is, those who have been calling for a gold collapse have been wrong for the better part of a decade. I suggest a brief study of fiat currencies in history for anyone who puts blind trust in the U.S. dollar, or any fiat currency for that matter.

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Richard June 17, 2010 at 11:04 pm

Since this article was written in feb 2009 gold has gone from under 800 to 1230. That is a better than 50% increase in a year. If the author had purchased 20,000 in gold it would be worth aprox 30,000. That is a great investment and gold hasn’t stopped moving up for the last ten years. With the gov printing all the paper money to finance bailouts the dollar is being diluted thus the apparent increase in gold and silver. Actually the dollar is loosing value thus gold appears to rise because gold and silver have intrinsic value and in times of inflation or deflation gold and silver become a safe haven. Boy was this author WRONG!

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