On television lately I have seen several commercials encouraging people to buy gold now as a way to safeguard one's portfolio against uncertain economic forecasts. (For a hilarious spoof on these commercials, click here.) While it is true, as the advertisement suggests, that gold is unlikely ever to lose its value completely (unlike individual stocks), at $1000 per ounce gold is the absolute last thing I would be thinking of adding to my portfolio at this time.It is still true that the basic rule of investing is to buy low and sell high. I can remember just a few years ago when the gold spot price was under $300 per ounce. I remember thinking then (before I was the savvy and smart investor that I am now) that I should buy up some gold with some spare cash since it was so low. And sure enough, gold is now trading at over $1000 per ounce. But at $1000 per ounce, gold is anything but a bargain.
The television commercials are thinly veiled attempts for gold holding companies to unload their overpriced gold to their "customers" by creating a sense of fear and uncertainty about the economy. As I have posted about previously (read my thoughts on market crashes and see my ETF portfolio here), the absolute best thing that the average Joe can do to prepare for an uncertain future is to contribute regularly to a retirement account such as a 401(k) or a Roth IRA, not to rush out and buy up as much overpriced gold as you can!
In fact, if you have any gold, now may be a good time to consider selling it off and reinvesting your profits in a retirement account. Just don't be suckered in by the fear-mongering. Use your head and ask yourself why those gold companies on television are looking to unload their gold on you at this particular moment. If you are looking for reputable places to buy gold, there are two that come immediately to mind that I have used myself in the past: Kitco and Goldmastersonline - As I said, I would not buy gold until it returns to a less-inflated spot price, but do yourself a favor and at least buy from a reputable company instead of a company that is just seeking to take advantage of your fears and uncertainties.
5 comments:
With all due respect, the price of gold is only rising because the U.S. dollar is dropping. The shell game of the Federal Reserve's printing of worthless paper money (IOUs good only for what they can buy) to give to the countries, institutions and individuals that are loaning literally trillions of dollars to our bankrupt country is about to collapse--our creditors are about to cut us off. The last thing you want to do when no country in the world will accept U.S. dollars as payment is to be holding U.S. dollars. Gold (and silver, too) has been used as money for thousands of years and will have inherent value as a store of value and means of payment long after the U.S. dollar becomes history. Remember the German mark after World War I? At the end of 1923, the German mark had become so hyperinflated and worthless that it took 4.2 TRILLION marks to equal $1US. And given the rate at which the Fed is printing paper money with absolutely nothing to back it, the U.S. is heading for the same economic fate as Germany 90 years ago. Check out www.shadowstats.com, www.coinflation.com and www.goldismoney.info for articles on where the U.S. economy is going. It's not going to be pretty.
If I buy one ounce of gold @$1,000.00 per ounce, I will have $1,000.00 worth of gold. If the Dollar crashes, what can I do with my gold?
Can I go to Wal-Mart and spend it? What will it be worth.
Because if the Dollar is worth 1 cent, how much money can I get for my Ounce of Gold?
I see how buying gold as an investment may work, but as protection from the bad economy, is what I don't understand.
Chris,
If you bought 1 ounce of gold at $1000 then say the dollar loses half of it's value. You sell your 1 ounce of gold and get $2000 for it. You have "saved" your purchasing power since what used to cost $1 now costs double because the dollar has lost half of it's "value".
So, if a TV cost $1,000.00 before the dollar went to .50 would it now cost $2,000.00 when the dollar falls to .50? If so, how have I protected myself?
If you bought gold at $1000 and the price of the TV was $1000 you would be able to exchange 1 gold piece for $1000 and buy the TV.
Now, when the dollar loses half its value the value of gold will go to $2000. However, the TV will cost $2000 as well. This means if you had kept your original $1000 you would not be able to afford the TV. But if you had bought the gold piece you could still trade it in for $2000 and buy the TV.
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