In a recent article for AARP Newsletter Michael Zielenziger wrote about the value of gold investment. As he points out, when stocks’ value has been shaken, gold suddenly seems like a solid investment.
Indeed, over the last year gold prices have risen nearly 70%. Right now gold is selling around $1100 per troy ounce. When its price is high, gold is hot, and both this bandwagon psychology along with the media hype helps push the sale of gold.
Gold does seem like a good hedge against inflation. But, remember two things. First, gold dealers are in the business of selling gold so they pay for media ads as well as well-known media spokespeople to sell gold for them. Second, gold is a speculative commodity. Gold’s particular value as a commodity happens to fall when the economy expands for the same reasons gold value rises when the economy collapses. To invest in gold is, in a way, to bet against the health of our economy.
There are three other reasons to pause before putting a lot of money into gold. First, about 2/3s of all gold is purchased by jewelers. With gold prices high, fewer people are buying gold jewelry, and the demand for gold in the jewelry industry has fallen 34%–not good. Second, gold can appreciate, but it does not offer yearly growth in dividends. Finally, gold is not an investment in new jobs, one factor that could help our economy. Only when you invest in company stocks are you increasing the possibility of job growth.
A general strategy for investment is to always spread your eggs around in different baskets. The gold basket should not be the only one filled.
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