| Buy Gold Now. . . NOT!
Gold is uniquely alluring to investors. It's attractive and tangible. But the same irresistible qualities are precisely why counting on gold to be a "good investment" may be a bad idea -- especially now.
Accurately valuing gold is difficult. Sure, anyone can get a spot price by the ounce. But market experts can't agree if it's a bargain at $1,600 or in place for a continued drastic correction (gold peaked at over $1,900/ounce last September).
Like art, baseball cards and other collectibles, gold is notoriously difficult to value with traditional market metrics.
Gold enthusiasts proclaim it is a hedge against inflation and that its value always increases…the same premise the banking industry counted on with real estate a few years ago. Evidence indicates no asset always goes up, even gold.
In fact, compared against the stock and bond markets over the last 200 years (as of July 2011), gold has performed abysmally as an inflation hedge.*
Any frequently used commodity rises with inflation--things like oil, soy beans, and steel. But according to the World Gold Council, only 12% of gold's demand comes from industrial applications. The rest is from jewelers and investors. This means the majority of gold's price is tied to emotion, not daily necessity such as gas or wheat.
Moreover, in my experience of the last 5 years, the gold frenzy has less to do with speculation about future gold prices than stockpiling a perceived currency…should the end of our economy be nigh.
That's created unparalleled historic demand…and an absurd price to go along with it. Some investors are paying over $2,000/ounce in "rare" coins just to have the gold.
Therefore gold is not an inflation hedgle, it's a crisis hedge. I've written about this before. Given an economic reset, gold could eventually become a currency. But in the beginning, it won't be worth anything. You can't eat it, grow it, shoot it, or make tools from it. It's an adornment worth nothing if the only goal is to stay alive.
End of the world scenario aside – the price of gold tends to go up in times of recession and down during times of economic growth. Keep in mind gold rose to over $800/ounce in the 1980's era of "stagflation" only to drop 50% in price as the economy began to slowly recover. And there the price of gold dwelled for over 20 years.
At this point in our economy, gold has a greater risk of falling in price than continuing its meteoric rise.
Don't get me wrong, if a leprechaun offers you a pot grab it. But if you're thinking about using discretionary dollars or cashing in your nest egg for gold, think twice. Gold's volatile behavior and current price of $1,600/ounce make it a risky place to sink your money.
I welcome your questions and comments.
becker@wiserfinancial.com
Marc Becker, AIF
Managing Partner, Wiser Financial Coaching
Columnist, The Advisor Sherpa
To read past articles and view past videos, visit: www.marcbecker.tv
* http://www.joshuakennon.com/stocks-vs-bonds-vs-gold-returns-for-the-past-200-years/
Golf Tip of the Week
Listen Carefully to Sound Advice
One of the most frustrating and most enjoyable things about golf is that no one--at least, no one with any smarts--ever stops learning the game. Struggling weekend golfers may like to think of top pros as impervious to the fluctuations in form that they suffer, but they're dead wrong. When a tournament golfer goes from four rounds in the 60s and victory one week to a couple in the mid-70s and a missed cut the next, exactly the same syndrome is at play that takes a weekender from a 95 one Saturday to a 110 the next. Which is, of course, that golf on any long-term basis is imperfectable by anyone. I discovered early in my career that minimizing the scale of these inevitable form fluctuations depended mostly on knowing my own game sufficiently well to self-diagnose and self-correct. But I also found that sometimes there was an easier and quicker way. New tournament pros are often advised to stick with what got them on Tour and not listen to any of the advice that is so freely available to anyone with rabbit ears. Despite solid knowledge of my own technique, and a great teacher in Jack Grout, I did not adopt that attitude in my early Tour days. If I had a problem, and I ran across someone whose expertise I respected who thought he could offer a solution, I was always more than ready to listen. I might not act on the advice, but I definitely wanted to know what it was. And such counsel did, indeed, help me to many wins, including a number of my major championships. The 1967 U.S. Open at Baltusrol is such an example. I'd managed to pull just about every aspect of my game out of some long doldrums except for my putting. Then, with only a day to go, Gordon Jones, a friend and fellow Tour player from Ohio, after watching me try all kinds of things on the practice green, finally stepped up and asked, "Jack, why don't you go back to the way you used to putt years ago? You know, take it back a little shorter, then hit it harder." I hit a few putts that way, then, suddenly, bingo! The next day I went out and shot 62 in my final practice round, holing everything, and by the end of the week had won my second Open with only three three-putts to 17 one-putts. Believe me, there's never any harm in listening carefully. Source: http://www.nicklaus.com/nicklaus_golftips/
Trivia Time
This week's question: What is the longest running television series in the United states?
Do you know? E-mail your answer wendy@wiserfinancial.com and if you are correct, receive a free "Way to Go!", "You Rock!", or other congratulatory phrase. Then brag to all your friends about how smart you are.
The answers will be in next week's newsletter!
Last week's question: Which US National Park receives the most visitors each year?
Answer: The Great Smokey Mountains National Park, with over 9.2 million visitors a year.
Congratulations to Brett B. David R., and Dick W. for getting the correct answer! What smart people.
Source: www.nationalparkstraveler.com
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