Do you own gold?
Well, why not?
If you listen to the never-ending commercials, you’d think owning gold was the soundest investment in the world – the only hedge against inflation, the ads claim.
You simply must own gold if you’re a savvy investor, right?
Not so fast.
My BS detector goes off when I hear the breathless pitches to buy gold – and do it now! Plenty of investment experts also are urging caution.
The Dallas Morning News, which I left last week after 27 years as a reporter, just had a big spread on gold in the business section.
“Don’t let con artists fool you with rush to red-hot gold,” a headline said.
The story quotes Gerri Walsh, a vice president at the Financial Industry Regulatory Authority.
“Con artists are using the run-up in the price of gold as a hook to part investors from their money,” she said.
Yes, the price of gold has skyrocketed – from about $600 an ounce four years ago to more than $1,800 an ounce now. A 300-percent rise will get any investor’s attention.
But there’s no guarantee that gold will continue to soar in value. It could crash too.
Consider what you’re getting when you buy gold.
“Gold isn’t like a stock or bond,” writes Jonathan Burton on Market Watch. “It offers no income, no dividend, no earnings … Gold has no untapped intrinsic value; it is worth only what people are willing to pay for it. And lately, many people have been only too willing.”
Burton quotes Leonard Kaplan, president of Prospector Asset Management.
“Gold is going up because people are buying it, and people are buying it because it’s going up,” he says.
This is called speculation – and it can be very dangerous.
“Gold is an investment whose fundamentals are rotting from within, and you do not want to be anywhere near it when the bottom falls out,” writes Charles Lewis Sizemore on Seeking Alpha.
Like Burton, Sizemore points out some flaws with gold as an investment.
“Unlike most commodities, gold has little industrial or intrinsic value,” he writes. “Its purpose is almost entirely ornamental. Gold is considered a precious metal because humans have found it attractive as jewelry for thousands of years.”
Are you beginning to question the gold-buying frenzy? Good.
You’ve probably heard of Dave Ramsey, a New York Times bestselling financial author. He has a syndicated radio show and newspaper column, and he gives lectures around the country.
He says gold is a dumb investment.
“Many people invest in gold out of fear,” Ramsey wrote last month on his website. “The price of gold is driven by supply and demand, as well as speculation … When prices are driven to artificial highs or lows out of fear and greed, investors create a bubble. And bubbles will always burst.”
If you’re like me, you don’t have tons of money to invest. So you can’t take big risks.
Gold, despite its recent run-up in price, remains a risky investment.
Beware of following the investment herd. The herd may be chasing gold now, but listen to experts advising caution. As financial guru George Soros has said, “Find the trend whose premise is false and bet against it.”