Don’t Buy Gold

Brent Pittman —  05/19/2010

Investing in gold is a hot topic these days.  Do you realize when the ads for gold come on?  It’s late a night, just after the commercial for a knife that has a laser beam for $19.99.  Why don’t they advertise during popular sitcoms?  Because they have a better chance of catching down and depressed people late at night!  A recent article on Bloomberg.com argues that gold is not a good bet against inflation

However, gold’s record as an inflation hedge is more mixed over the long-term. Because gold fell from 1980 to 2001, the metal’s total appreciation from 1972 to 2001 was just 336.5 percent. That barely beats inflation over those 29 years of 323.7 percent, and is way behind the 2,466 percent return of the broad Standard & Poor’s 500-stock index if dividends are included.

If you want a good hedge against inflation then why not buy and own a house that is easier to sell than gold?  Over the long run Gold barely beats inflation.  See Chart.  In 1910 gold was worth $18.92, as of today it is worth $1210.00 an ounce.  While this seems impressive, but over the long-term with inflation added, see what gold does.  An article by Motley Fool shows some research:

According to University of Pennsylvania finance professor Jeremy Siegel in his seminal book Stocks for the Long Run, here’s what a dollar invested in various things would have grown to, from 1802 to 2001. (Amounts have been adjusted for inflation.)
  • Stocks: $599,605
  • Bonds: $952
  • Bills: $304
  • Gold: $0.98

So do you still want to invest in Gold?  I recently heard a personal story about a man who called into one of those late night gold commercials and bought a large amount of gold.  A few nervous and scary days later the gold prices plummeted and he sold it all, resulting in a $20,000 loss.  This is not something that I personally want to be involved in based on the history of gold.

Sure you could get rich day trading gold or stocks, but I prefer to sleep well at night and not lose my shirt (like most day traders)  So go ahead you gold bugs, keep on buying…I hope you are able to  sleep tonight.

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Brent Pittman

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Brent is a financial coach and writer looking for the perfect donut. He believes personal finance should be both fun and accessible to anyone willing to learn.