Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here Monday mornings.
Maybe I listen to too much financial radio, but I’m getting tired of those commercials hocking gold. Some of them make no sense:
“Convert your old, forgotten paper 401(k) into a pot of solid gold!”
Who forgets about their 401(k)? It’s most Americans’ largest asset after their home. And why are your 401(k) investments sinking? The market is up almost 100 percent the last two years.
Other ads try to scare you into owning gold:
“National debt, unemployment, inflation, the housing crisis, China taking over as an economic power, all attacking your assets. And the only solution is gold, gold and more gold!”
Gold parties and gold stores everywhere. Is gold the answer to inflation, deflation, a falling stock market and whatever else might happen?
There are legitimate reasons to own gold, among them:
1. Gold prices should rise as the dollar’s value falls. With the government piling up debt and Federal Reserve pumping excess money into the system, you can imagine the value of the dollar falling.
2. Gold can be a hedge against global crises. It’s understandable; we’ve experienced two major recessions and two bear markets in the past decade.
3. With gold above $1,485 an ounce as of late Friday, it is still shy of its inflation-adjusted high of $2,000-plus in the early 1980s.
But there are also reasons not to own gold, including:
1. You are betting on investor emotion — fear — which can change swiftly. With more than $50 billion just in SPDR Gold Trust (or GLD, the largest gold-based ETF — exchange traded fund), investors could quickly sell an enormous amount, creating a huge supply shift.
2. Higher prices have led to new gold mining, which could bring a supply surge and price drop.
3. Gold pays no dividend, and costs money to store.
So, should you join the gold rush or not?
I think the folks at First Eagle Funds have the right answer: Own some gold as a hedge. They added gold to their portfolios long before it was popular, and still maintain around 10 percent of their holdings in physical gold.
But just because gold has gone up the past 10 years, it doesn’t mean it will always go up, as gold, like most other investments, is highly cyclical. One thing’s definite at this point: When it seems four of five commercials are pushing gold, you’re sure not early to the party.
Have you purchased gold lately? As coins or through an ETF? Or have you been selling any gold?
Finally, are you tired, like me, of those darn gold commercials?
– By Wes Moss, for Atlanta Bargain Hunter