Should I Buy Gold?
An excellent question; and one that came on the heels of yesterday’s answers to questions post. Should I buy gold?
First, gold is a barometer of fear. It is not a safe harbor against inflation. It rises with great intensity when people are worried. It falls with equal intensity when people feel safe. Recently, it falls on the days the stock market rises and rises on the days the stock market falls. I wrote an article in 2009 on this very subject, and you can access it at Why Buy Gold?
Second, we have already increased the value of our investments to an amount that surpasses the increase in gold. On March 9, 2009 the spot gold price was $1,431. On August 18, 2011 the spot price was $1,818. This is an increase of about 27% over 29 months. But from March 9, 2009 until now clients who use our investment services have done much better and for the most part are now sitting safely in cash.
Third, fear is what we seek to capitalize on when making investments. When fear is high, investment prices are low. When investment prices are low, bargains are more plentiful. Proper and timely buying into investment bargains produces a rate of return in excess of gold’s return…unless the nation dissolves…and that isn’t going to happen in the US this time.
Fourth, gold generates no cash flow, but extracts a holding cost – no dividends, and no interest. It creates no value that increases – it simply monitors fear. If what people fear actually comes to pass, most of the gold they own will be inaccessible to them because for many they haven’t bought gold in a format that can be converted easily to offset price inflation… either it’s in an IRA and must be taxed to be accessed or because they bought paper certificates not backed by physical gold.
Finally, I considered buying gold this week and didn’t. The reason for this is simple. The average financial meltdown of a developed economy lasts slightly more than 4 years. This meltdown began in late 2007 and it’s now 2011. I expect more turbulence in the short term, but here in the States we are on the back side of this…