Wednesday, March 09, 2011

Gold Was Not Always So Golden, Have We Really Forgotten?

Each time I turn on CNBC, it doesn't take long before I hear some market expert telling me to "buy gold now," or "it's not too late to start buying gold." They talk about how gold is a physical asset that will always be there and how little the downside risk is to owning it. Hmm, didn't someone once tell me this about home ownership?

If I haven't already bought into the gold boom, should I really start now?

I'm reminded of the equities expert who came on CNBC back in the Fall of 2007. The Dow had pulled back to 13,000 after reaching 14,000 a month earlier. He was asked whether we would see 12,000 again before we saw 14,000. On national television he adamantly said we would see 14,000 and not 12,000.

I have to laugh when I think what if the question had been worded 6,600 again before 14,000. His answer would still have been wrong. So much for experts.

As a collector of gold coins, I'll admit the past 10 years have been a good one, but what about the 20 years prior to that? If you've owned gold for over 30 years, it's hard to forget that gold was not always so golden.

Personally, I'm worried that it's starting to feel like deja vu and I've lived through this before. In 1980 we were looking at never ending inflation, spiking oil prices, mid-east turmoil (remember the overthrow of the Shah and the resulting Iran hostage crisis?), and the "evil empire" was still threatening our very existence with nuclear annihilation.

Gold seemed like a no brainer back then too as it soared above $800 an ounce.

But if you bought gold on January 21, 1980 (at the peak of $850 an ounce) and held it for exactly 20 years, then sold it on January 21, 2000 (at the day's close of $287.75) you would have lost over 66% of your initial investment. Heck if you had held it exactly 1 year, you still would have lost over 30%.

Today, with a declining dollar, the threat of inflation, and mid-east turmoil, gold seems like a no brainer. But it also feels a lot like 1980 all over again.

What will happen when the Fed finally starts to raise interest rates and they stop the quantitative easing? What happens if the dollar begins to firm up? What happens if the U.S. and other countries start selling off gold reserves to help service rising debt? Some in the U.S. have already begun calling for the government to raid the piggy bank at Fort Knox.

So have we really forgotten that gold has its risks too? Isn't it possible that the next 20 years could look more like 1980 to 2000 when gold didn't seem like such a smart move?

I'm really starting to get this feeling of deja vu.


At 4:07 AM, Blogger fisher_daniel said...

Gold boom depend upon the market condition.But its nice to invest in gold.Folks can save from many threats like bank failure,terror attacks by buying and selling gold.Krugerrands

At 4:38 PM, Anonymous Cooldude said...

i have the same sentiment, that's why i collect gold coins not only for it's financial worth but for it's aesthetic appeal. At least I can display them if i can't sell them in the future :p

At 2:51 PM, Blogger A.C. Dwyer said...

I wouldn't hesitate to buy a gold coin if I really wanted it for my collection, but I'd be lying if I didn't admit that I've bought relatively little in the past 6 months compared to what I was buying 5 years ago.

At 3:51 AM, Anonymous Silver MLM said...

The decline of paper currency that is not backed by the gold standard demands that you begin to protect yourself, especially as jobs become scarce with the rise of technology. To guard against this economic upheaval it is advisable that you start collecting Gold and Silver.

At 1:03 PM, Anonymous garden1234 said...

I would still invest in gold because I feel that its price will only keep rising. I think it is a worthy and an aesthetic investment. I really do not plan to sell my gold at all. I just want to give it to my daughter when she grows up and gets married.

At 9:42 AM, Blogger ExecutiveCoin said...

I Feel the same as garden1234. Gold is a great way to invest - great value in it and nice appeal. I know a lot of people who invested in gold and had made a lot of profit on it. And then others who wished they've never sold their gold coins and kept them for times like these - bad economy + price of gold at all time highs.


Post a Comment

<< Home