Should You Buy Gold?
The most commonly asked question I get is, should I buy gold or some other precious metal like silver or platinum? The main reasons for driving interest in gold, are advertisements, the increased price of gold, and fear.
There are a lot of commercials on TV and the radio, from companies that want to sell you gold. The main reason is, they are guaranteed to make a profit when they sell it to you, regardless whether the price goes up or down. They are not selling it to you at the pure spot price, because they have to mark it up to make a profit or they charge you various fees. Their commercials prey on your fear that the economy is going to collapse, and that money will be worthless. The secondary motivation they use is that they build the expectation that the price of gold will go up, benefiting you the buyer of it. If you want to sell your gold, you can sell it back to the company you bought it from, or some other entity, but they won’t give you the full market value of it- that is because they have to make a profit when they subsequently sell it.
Is gold or other precious metals good investments? They are if you buy low and sell high. However most people buy when the excitement is the greatest, when prices are at their highest, and then sell when it slumps. This is perhaps the riskiest time to buy gold and some other metals. The highest price gold ever reached was in September of 2011, when it hit $1,895 per ounce. This year the price per ounce has been bouncing pretty much between $1,600 – $1,800. 10 years ago it was only $400.
People that bought gold at $400, and sold it when it peaked at $1,895, earned about a 475% return on their money. That is really exciting, however now that it has been fluctuating within a couple hundred dollars of the peak, now is a nervous time to get into gold. Some might play it like a commodity, buy when it trickles down a little and sell when it pops up, or sell it short when prices get high, but even trained gold professionals don’t know when the best time to speculate like that is. Others may tell you to wait until it drops a lot, then buy in, but how do you know it might not drop more after you buy it. Or what if you bought gold 10 years ago, and watched it do nothing for a few years, and impatiently sold it before it started climbing when the recession hit.
I watch some of the recession indicators, and post them every Friday here, on at Weekending Financial Scorecard. Some feel there are clear signs that we could go through another recession next year, and that would make gold prices go up, since recessions and inflation fears often are indicators. However, as we look back at many financial indicators over the last 10 years- some of the things financial experts always rely on haven’t always held true.
Some people remember when silver hit almost $50 an ounce in 1980 going from around $5 an ounce just a couple of years prior. It quickly dropped back to about $5 an ounce in a short time, and held there for about 15 years. Those that invested in silver late, and got out after it tumbled lost a lot of money. Now part of that run up was due to market manipulation, when the Hunt brothers tried to corner the market. I’m no expert, or conspiracy guy, but various forces unknown to the average investor like you and me could cause the price of metals to fluctuate these days, making it more difficult to know when to buy and sell. If you have gold and are considering selling it, you may want to read an article I previously wrote How to Sell Your Scrap Gold.
If you own various mutual funds, check out their statement of additional information for lists of the underlying stocks and bonds they hold. You may find that they are investing in the precious metal industry. Already you may be investing in gold and silver or other metals and not even know it. If you direct more of your money into precious metals, you could be increasing your exposure and your risk.
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