Buying gold as a safe haven

Ask the Expert Retirement questions answered


Buying gold as a safe haven


By Walter Updegrave, Money Magazine senior editor
November 5, 2008 5:06 pm


Question: In the midst of the turmoil on Wall Street, I’m thinking of investing in gold, specifically bullion or gold coins. Do you think this is a good idea? —Roderick Gaerlan, Redondo Beach, Calif.



Answer: Ever since the financial markets began going haywire this year, I’ve been getting lots of emails from people who are considering buying gold as a way to weather the crisis.
That, I can understand. Investors have come to see gold as a refuge in a sea of uncertainty and volatility, an investment that will hold its value even as the world collapses around it.


What I can’t fathom, though, is how gold acquired and manages to maintain this reputation as an anchor of stability. It doesn’t make sense.


I mean, just look at a chart that tracks the price of gold so far this year. It started out at about $850 an ounce in January. As oil and gas prices started to climb and pundits began predicting that oil might hit $200 a barrel, gold quickly shot up, spiking as high as $1,011 an ounce in March.


After breaking the thousand-buck barrier, however, gold retreated and began bouncing around in a trading range of $850 to $950 in the spring and early summer. It flirted with its previous high briefly in July, hitting $986 an ounce, but then dipped back below $750 in September. It rallied again to break $900 an ounce in early October, but has since dropped below $800, closing out October at $731 an ounce.


So let’s see, that’s a 19% gain from the beginning of the year to its March peak, then a 26% drop from March to the September low, a 20% rebound to early October and then another 19% decline to the end of the month, putting gold 14% below where it began the year and 28% below its March high.


The point isn’t so much that as of the end of October gold was in the red for the year to date. It’s that if you’re looking to avoid gut-wrenching ups and downs, this isn’t much of an improvement from the stock market. It’s kind of like getting off Six Flags’ Kinga Ka rollercoaster and jumping on Coney Island’s Cyclone. The drops may not be quite as steep, but you’re still in for a white-knuckle ride.


That’s not to say that you can’t make money in gold. You can if you’re able to get in and get out at the right time (although, human nature being what it is, most people are eager to buy when gold is in the news and prices have already jumped, not when it’s unpopular and its price is languishing).


And since gold prices are not highly correlated with stock prices, you can also make a case for investing a small amount of your assets (maybe 5% to 10%) in gold as a way to diversify your portfolio.


I’m not a big advocate of this approach, but if you’re going to do it, I’d say precious metals mutual funds or a gold ETF is a simpler, cleaner and better way to go than buying coins or bullion. (I’d also add that you have to be willing to rebalance your portfolio periodically for this strategy to work.)


I don’t think it’s ever a good idea to move all of your investment stash into any safe haven or, in the case of gold, putative one. As I’ve noted before, the money you’re investing for longer-term goals like retirement should be invested in a blend of stocks and bonds that’s appropriate given your risk tolerance and how long it is until you’ll need the money.


That said, virtually all of us also need to keep some portion of our assets protected from the ups and downs of the financial markets. Here, I’m talking about an emergency fund or, in the case of retirees, an account that holds 12 to 18 months’ worth of living expenses.


But the right place for this segment of your portfolio is a totally liquid and secure investment such as a high-quality money market fund, short-term CDs or savings account, not gold. For, whatever other qualities it may have to offer, stability of principal is not one you can count on from gold.



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Filed under Uncategorized79 Comments Add a Comment

Hey Robin if gold is not a safehaven…what is? The dow? Nasdaq?Good luck, there down nearly 40%, gold down less than 10% year to date….Just watch gold when hyper-inflation takes over.
Posted By Keith S, NY NY: November 16, 2008 2:16 am

Gold as safe a haven is a bogus concept. Here we sit on the verge of the biggest economic disaster since the great depression. With two wars being fought, and gold has dropped from its March 17 high of $1030 to $730 as of todays close. I might not be a financial wizard, but I would venture to say whatever gold might be it is not a safe haven.
Posted By Robin Queens NY: November 11, 2008 6:12 pm

Hey Gaucho420 Great advice! Maybe you shoud put your portfoilio in the U.S. dollar. Like gold it cant be eaten drank or used for protection. however I bet when hyper-inflation kicks into high gear. It will make excellent toilet paper or could be used to start a fire.
Posted By Jerrod Napa Valley CA: November 11, 2008 11:48 am

Yes, excellent Gaucho420, that’s the spirit! Of course you can’t eat or drink gold or expect it to defend you. On the other hand, you can buy things with it, like food, drinks, and guns, when paper is inflated away to nothing. And guess what, you don’t have to leave the country in an economic crisis, but the last place I’d want to live would be L.A. or any other large city when all the have nots decide they want what’s yours! PM’s are a hedge against stupidity and government paper promises, and even if the price drops they are always worth more than paper. Ask anyone in Argentina, or Iceland, if they wish they had gold or silver now. PM’s are universal money, always will be.
Posted By Marc, Toronto, Ontario: November 11, 2008 11:11 am

There is a big disparity between the paper gold price, and the physical metal price by over $130 premium per ounce…Comex price is being manipulated by the Govt. Just like the lie-bor, and the dollar.
Posted By Keith S, NY NY: November 11, 2008 12:37 am

And I’ll add this tidbit…I’ve seen money runs, Argentina…and you know what people really wished? That they lived ELSEWHERE. So if you are one of those waiting for armageddon or a revaluing of currencies, perhaps into DOLEROS, a true foreseer would leave the country, go to one backed by gold or deemed safer and then wait.
Its funny to read these gold freaks, because if they truly beleived the convinctions of their arguments, they’d be packing up and heading out, and not blogging below CNN.com
I’d also advice a security detail, because gold can’t defend you either.
Posted By Gaucho420, Los Angeles CA: November 10, 2008 9:26 pm

Only the idiots and uneducated actually think that gold is somehow the miraculous savior should the Dollar fall…what they don’t realize is if the Dollar falls, so will every other currency, including gold…you can’t live, eat or drink gold, yep people treat it as if you can.
Its only worth what we beleive its worth and does not sustain human life, in the same way the dollar does. They’re many more rare & precious metals out there, but they’re not as pretty, apperently.
In tough times, the crazies come out…that’s one thing that’s been proven right during these times.
By the way, what was the Dollar backed by in the 1930s? How about during WWI? WWII? Funny, where was gold to save us then?
Get educated, not stupid.
Posted By Gaucho420, Los Angeles CA: November 10, 2008 9:18 pm

HAHAHAHAA! What a bloodbath of comments! “Ask the Expert” indeed! The commentators are the experts, with a few idiotic exceptions. Sure gold can get the bum’s rush all the way down to the $100 -$200 range, sure it can get so cheap you can pave your driveway with it, sure the sky is pink!
Boohoo! A little volatility scares the author? What do you think is causing it? Panic selling of paper gold, millions of ounces equivalent, that doesn’t even exist. When the December Comex contracts expire, watch the mad scramble for precious metals, real metals, drive the price back to a decent level. And he suggest investing in more paper assets? Those same assets backed by nothing but a promise?Walter Updegrave’s comments are a perfect example of the pandemic idiocy that pervades the gold debate. He actually only looks at gold’s performance for the last year, instead of, say, the last 5. You can paint any picture to suit your needs on a short enough timeline! Look at gold for the last month! OH MY GOD!! ITS TANKING! BAIL BAIL BAIL!! HAHAHAHAHA! Yes, please sell, I need some more.
Posted By Marc, Toronto, Ontario: November 10, 2008 6:15 pm

When the money creation policy of the Federal reserve brings an end to this deflationary period. As it most certainly will. The United States will see a period of hyperinflation. At this point in time it is reasonable to expect Gold will rise but all commodities will dramaticly increase in dollar denominated price. I say not only buy Gold, but buy silver. And while you are at it load up on can meat, rice and other non perishable food items.
Posted By Dick Stroker Superior WI: November 10, 2008 5:33 pm

Hey Jason in AustinIn a fiat money system, where money is not backed by a physical commodity (i.e.: gold). The only thing that gives the money value is its relative scarcity and the faith placed in it by the people that use it. Thanks to the Federal Reserve there is no scarcity of money, as a matter of fact there is no restrain at all on the amount of money that can be created. This allows unlimited credit creation. Hyper-inflation is the terminal stage of any fiat currency. In hyper-inflation, money looses most of its value practically overnight.The framers of the constitution had the insight to be concerned with the unrestrained creation of currency and all agreed upon limitation on the issuance of money. By backing money with gold a finite substance, as was done periodically through history. We avoid the risk of currency collapse.
Posted By Meg Olson Duluth MN: November 10, 2008 5:11 pm

Robert, you clearly don’t know what you are talking about.
In gold, open interest has fallen from 500,000 to nearly 300,000 over the past several months. Speculators have been told that they are non-economic customers and cannot demand delivery. This activity by the COMEX is clearly unethical and criminal.
Posted By Alex, Washington DC: November 10, 2008 10:43 am

Lets look at another rational: suppose you have 100K in cash to invest somewhere. So you invest that in gold coin when the market price is in your favor and you actually take delivery. Sure the price may fluctuate, but you know with some certainty that the real boogy man is hyperinflation and when that happens, (and we’re well on our way down that road) Gold being actual currency will hold its value and your money will retain its value: but the deal is you never sell it. Its loan collateral: you rcan’t really take your mutual funds to any bank (here or abroad) in times like these and turn that into instant cash. That’s the enduring value of gold.And decades hence, gold will be trading in its revalued price worth thousands per ounce in today’s (old) dollars. Or new Ameros as the case may be. Buy gold. You bet. Case closed.
Posted By Jon Ryan Seattle WA USA: November 9, 2008 9:51 pm

You can lead a horse to water but you can’t make them drink. Walter will be in those long food lines likened to the 1930’s. Too bad.
Posted By Kevin Rathdrum, Idaho: November 9, 2008 4:15 pm

The “expert” should have read the question which was related to gold coins and bullion. Instead, he wrote about paper gold, completely and utterly missing the point. Waste of time article.
Posted By Jim, Redondo Beach, CA: November 9, 2008 10:06 am

Robert, you’re confusing me. You say there’s no physical shortage…and yet dealers can command a premium of several percentages over spot, which also are several percentages less than you can get if you auction your gold coins on ebay. You also say you bought 20 bars (at 100 oz. a bar that’s 2,000 oz. at $455 per ounce that’s $910,000) and you sold the same for $850 per ounce in October. By my calculation that’s a profit of $790,000! If my figures are accurate I nominate you for gold bug of the month!
Posted By chuck, charleston, s.c.: November 8, 2008 7:58 pm

When I graduated from college and started to work 46 years ago, you could buy a house for $20,000 or roughly 600 ounces of gold.
Today, $20,000 will not buy you a house. Six hundred ounces of gold will.
Posted By Anonymous: November 8, 2008 1:45 pm

Like any investment with potential for significant gains, gold has a measure of volatility. Rather then focusing on month to month flucuations. Ride this bull market to the parabolic stage and then jump off. Gold is still incredibly undervalued, and over sold. If you cant handle the price swings maybe this is not the investment for you. However if you have the nerve, and can allocate a portion of your portfolio to gold, you will be generously rewarded.
Posted By R.Olson St.Paul MN: November 8, 2008 10:59 am

NOTHING WRONG WITH PHYSICAL GOLD
There is nothing wrong with holding physical gold, as distinguished from gold funds.
If you want to buy gold, you should buy it from a broker who sells raw gold, like gold coins. But don’t take them home with you. They have a way of “disappearing” when you hire a mover or have your druggie cousins visit overnight.
If you must, store them in a bank vault. Look, if you are in real fear of our financial system demolishing, you should be willing to spend enough to purchase a large bank deposit drawer.
But forget the gold funds. They are no better (or worse) than the regular markets.
sanjosemike
Posted By Mike Rose, San Jose, CA: November 8, 2008 10:54 am

Great responses. The commentators on this article are more knowledgeable and present better arguments than the author.
Posted By Robert F Marley, Wilmington DE: November 7, 2008 5:48 pm

gold is a sell, all the way to 650 oz, short term, maybe even beyond Q2 of 09. i dont think physical gold is the best place to put your money - why stay static? if you want physical gold, sell 600 put options on COME, ~$900 premium collected on a 100oz contract basis FEB 09. either way, the best advice should just be: “ask your financial planner if gold is right for you” followed by the disclaimer that states investing in gold my cause anal leakage, dryness of the mouth, and impodence, etc, etc.
Posted By C, CA: November 7, 2008 12:52 pm

I’ve been trying to buy gold coins (gold eagle etc) and can’t find any available! Where do you actually buy this stuff if you want physical possession?
Posted By Paul - Columbus Ohio: November 7, 2008 11:51 am

The price of gold is linked to the value of the dollar more than the value of the stock market. One can see how the Dollar has roared back against the Euro and the Pound, so it is not surprising that Gold has dropped in US dollars.
Many Precious Metals Mutual Funds are Mutual Funds of Stocks (Gold Miners) rather than of Gold itself. These stocks are not immune to the across-the-board haircut taken by the stock market this year.
But we are now in a time of “change”. Don’t be surprised if things start to move before the end of the year.
Posted By Dan, Columbus, OH: November 7, 2008 10:16 am

Why do these *financial planners* keeping advising us to buy GOLD ETF’s or Mutual Funds when most people seek advise on buying the metal, the actual piece of metal!
Does anyone see the irony in the advice?
Posted By Praveen, Tampa, FL: November 7, 2008 10:03 am

If it all falls apart, the last thing I am going to be looking for is physical gold. I think the discussion is irrelevant, if really bad times were to arrive.
Posted By B, Dallas, TX: November 7, 2008 9:14 am

Ask the Argentinians if they wish they had gold when their currency went down…
Posted By Phil, NC: November 7, 2008 6:39 am

Physical Gold and paper gold have decoupled, leading to a run on physical gold and silver from COMEX which has ONE PER CENT, not 10% to cover its paper, similar to leveraged CDO’s, a disaster in the making this Dececember.
Gold ETF’s and mines have DIVERTED cash from the gold market, since investment there drains interested investors from the “real deal”–lower demand, gold suffers.
And, investors have been selling good investments, like gold mines, to offset bad investments in their “diversified” (meaning shotgun or confused) portfolios.
FIVE TRILLION is US printed dollars alone, is set to cause hyperinflation in about 18 months. The US dollar is about to make US look like Zimbabwe.
It is true gold has declined from $1050 to its current level, the old high of about $750 the year before.
Instead of viewing this successful retest of the old high as the new low, idiots who buy high and sell low, are calling that retracement a trend, when you should be thinking, those miner stocks, and those gold bars, are “ON SALE”.
Buffet says, buy when others panic, sell, when others see the high.
Of course, what do I know, and more importantly, what does he know?
Posted By Bletsu Fatsamatta, Long Island New York: November 7, 2008 4:22 am

Gold, and many other precious metals such as silver are tremendously underinflated right now. Just try to go out and buy the actual gold coins. You are going to pay a premium over the spot price. The value of the stock doesn’t reflect the value of the metal itself. The stock price doesn’t mean anything. You couldnt’ lose with metals right now. Its WAY TOO CHEAP.
Posted By Avi LA CA: November 7, 2008 12:26 am

I am astounded that people consider gold an investment superior to any other, or that the value of the ‘dollar’ or any other currency should be tied to gold.
Gold is a commodity!
Gold is used as a raw material in electronics manufacturing, in art and jewelry.
Sure, it has had a long history as a medium of exchange due to its scarcity and its beauty.
Keeping ‘real gold’ in an investment portfolio should be viewed as keeping a commodity in a portfolio. Or a safe deposit box.
Keeping ‘gold-mining stock’ in an investment portfolio should be viewed the same as any other mining stock.
Ultimately, though, you have to remember you are expecting that you can find a sucker out there to pay you more for your ‘investment’ than you paid for it yourself.
What is interesting is how the price of gold has been sagging along with the drop in stock-market values. Something has changed.
Reading this column and some of the reader responses reminds me of football team analyses, a whole lot of hooey and speculation.
I admit that I do not own any gold coin, bullion, or mining stocks, although I have considered such due to the industrial consumption of the metal.
Posted By Jason Stoons, Austin TX: November 6, 2008 11:16 pm

Gold is not volatile the dollar is volatile. Gold is gold but what is a dollar?
The price of a dollar was fixed at 1/35 oz of gold between 1933 and 1971 when Nixon defaulted on the United States’ international gold obligations. Since then the dollar has dropped like a stone, losing about 95% of its value in terms of gold.
Posted By Goldfinger: November 6, 2008 9:53 pm

Gold is a must in protfolio. It is a hedge against the US Dollar, Oil and crisis. There are many critics of gold but as a long term investment it has its merits. In the world of Peak Oil gold will respond. If the dollar starts a reversal gold will perform but the most significant fact remains. If you bought the DOW on 30th September 2002 when it was 7591 and you bought gold on the same day when it was US$323 you would be better off today 6th November 2008. This is despite all the gold selling to cover massive losses by hedge funds , redemptions etc
Posted By Bob Williams Redondo Beach California: November 6, 2008 8:12 pm

That was a very bias and foolish response to someone who is looking for a safe haven. Gold is real money not fiat currency that is worthless. If you could be sued for such stupid comments you wouldn’t be working for CNN.
Posted By Troy King, Tempe, AZ: November 6, 2008 7:52 pm

Most Americans don’t know what it is to live through the collapse of your country’s currency, like Mexico in ‘94, Argentina in ‘02, or Zimbabwe in ‘08. Simply put, if you owned gold or dollars, you didn’t lose your wealth. The Fed’s injection of large amounts of dollars to save the economy has a diluting effect on the real value of the dollar, just like the countries mentioned. You may soon need 2 or 3 dollars to buy a Euro, or 1500 of them to buy an ounce of gold.
Posted By LC, Monterrey, Mexico: November 6, 2008 7:41 pm

You cannot compare gold prices between 1933 and 1971, remember during that time the price of gold was set by the government and ownership was restricted to artists and dentists.
Gold is also subject to vast variations based on available supply. The vast increase in available gold in 1849 led to major inflation. Whilst gold is technically in finite supply, when the price rises, so do new stocks of gold (when it costs $800 to mine a ounze of gold, only a fool would mine it it the price is $300), the point is, as price rises, so do new mining techniques.
Posted By Greg, Atlanta, GA: November 6, 2008 7:05 pm

Robert, you are right we have enough gold. but we have more than enough US dollars and we will print more in the coming years. So based on the supply and demand, do you expect people can use those US green papers to buy physical gold at a cheaper price?
Posted By Jason, LA, CA: November 6, 2008 6:12 pm

Gold is easy to find, just has a high premium due to the panic purchases of October. This whole notion of Comex price dislocating from reality is just more gold bug stupidity. Case in point, as gold trailed down in price in the last 45 days, so has the price of bullion purchases. This is clearly documented via reputable online bullion dealers. If there was such a dislocation and/or shortage of gold, the bullion dealers would NOT have dropped their prices in the last 45 days.
Those thinking that gold contract purchasers will demand delivery and break the COMEX exchange are in for a rude awakening. Just as all these brilliant masters of money think they are draining the exchange by BUYING contracts, they are just taking delivery of those SELLING their bars for profit. I took delivery of 20 bars back in 2005 at an average price of $455 per ounce. Sold 20 contracts this October for $850 ounce and know of many more who are looking to deliver on these December contracts.
Spot premiums, price paid over spot price, will subside in coming months. Don’t believe in shortages, exchange defaults, cartels, cabals, currency collapse and so on. Buy the GLD ETF at best. If the world goes to hell and the currency collapses, these gold bugs will be curled up in the corners of their homes clinging to their precious metal crying that their chat boards have disappeared.
Posted By Robert, Long Island NY: November 6, 2008 5:24 pm

The link to the Precious Metals mutual funds showed them all down over 60%. How is that a market hedge?
Posted By Lancaster, PA: November 6, 2008 5:04 pm

Mike,
What your missing here is the decoupling of physical gold/silver from it’s paper COMEX counterpart. Having $20 US gold coins would bring as much and in my case more than when gold went over $1000. Premiums are anywhere from 25 to 50% over it’s quoted COMEX prices for gold and silver which is usually around 3 to 5% on the buy and sell side. This has been caused by hedge funds selling and shorts on the COMEX by a few major players with evidence of 2 or 3 or these being big banks.
The COMEX game in over in the December contracts when investors will demand their PM’s instead of cash since there’s such a decoupling IMO. The estimates I’ve seen is they have about 10% product to cover on the gold side and 12% on the silver, that’s a big problem. Either the COMEX fails or it comes up to close the gap. Silver isn’t held in any large quantities by governments so it can’t be bailed out like gold where the IMF and Central Banks could sell to keep this afloat this time but not in the future. The real question is how much gold on the books have been leased already and is double booked, many think quite a bit of it .
Posted By Rick,Tulsa OK: November 6, 2008 4:01 pm

Just my two cents worth: Look for sound investments, and don’t get advice from people who are trying to sell you something. For example: when gold prices topped $1000, gold people said “Buy it now before it hits $2000!” When prices crash back down to earth, they say “Buy cheap gold now! Great buying opportunity!” They really have no idea what’s going to happen to the price. The only certain thing is the cash flow they receive from sales premiums.
Posted By Mike, Dayton OH: November 6, 2008 3:06 pm

A lot of comments seem to be missing the point of the article. He doesn’t say that gold shouldn’t be a part of your portfolio. He doesn’t even say that it won’t continue to go up. He’s just saying that gold is also volatile and shouldn’t be considered a safe haven. Heck, it’s the title of the article. A quote from the article, “The point isn’t so much that as of the end of October gold was in the red for the year to date. It’s that if you’re looking to avoid gut-wrenching ups and downs, this isn’t much of an improvement from the stock market.”
Posted By Pat, Las Vegas, NV: November 6, 2008 1:31 pm

Does anyone know why the price of Gold went from $35 an oz in 1971 to $850 an oz in 1975 when OPEC officially priced oil in US Dollars?
Very simple you couldn’t own gold until Nixon signed a bill in 1974 to allow gold to be owned by the general public and was placed on the free market.
Posted By Rick,Tulsa OK: November 6, 2008 1:08 pm

Josh in Denver - you are spot on…
If you can’t figure this out on your own, it’s your own fault.
If you are scared of gold; go buy bank stocks!!!
Posted By Troy - Luther, MI: November 6, 2008 12:51 pm

Wow, not a great article at all. Yeah, gold is volatile, but to bash it because it has dropped so much this year is a little disingenuous considering the drops in the Dow. The Dow was over 14,000 around a year ago and look at it now! Gold has at least held its value since a year ago. The name of the game when it comes to wealth is purchasing power. Your purchasing power has been decimated in the stock market, but preserved in gold despite the volatility.
Posted By J. Kelly Anaheim, CA: November 6, 2008 12:49 pm

The question was about physical gold not paper gold. Physical gold has a wide gap on the paper COMEX quotes. This is an apples to oranges comparsion since a common $20 gold piece is still bring well over a grand and even the bullion coins are selling for $125 over the COMEX spot price. I wonder if he’s following the Dec Comex contract which may bring down the COMEX as people take physical gold for profit.
Posted By Rick,Tulsa OK: November 6, 2008 12:39 pm

Oh that’s funny The guy asked a question about buying physical and the answer was using facts from what paper gold did this year. He needs to get out more he maybe surprised that getting over a grand for any common $20 gold piece is here and now. He should have been using his skills to give real world stats on what the physical PM’s have done and not the COMEX stats where the loss hass occured.
Posted By Anonymous: November 6, 2008 12:20 pm

TIPs are “guaranteed by the US government”. Wow! That’s an iron-clad security blanket, if I ever saw one! What happens if the government goes under? Uh…no guarantee!
Posted By gold bug, Dallas TX: November 6, 2008 12:04 pm

For those bloggers claiming that gains on the sale of gold are taxed at ordinary income rates, or even collectible rates, you are only telling half of the truth. Gold bullion is a capital asset, thus gains are taxed using the capital gains rates. Gold coins may qualify as a collectible, but you need to do some fact checking. Some recently minted coinage is being ruled a capital asset in lieu of a collectible.
Posted By Mike, St. Louis, MO: November 6, 2008 12:03 pm

Picasso,
Art actually has been hoarded in the past as a means of preserving value. However, due to changes in tastes it is more difficult to do than investing in bullion, which we can assume will have similar uses/demand over a certain period.
And yes, We are in the deepest muck you can imagine.
Posted By John, Worcester MA: November 6, 2008 11:58 am

Gold is not an investment, it is life insurance for your money. To collect the maximum, your money must die. All of the “paper gold” is sold as an investment and should be treated as such. As for protection of wealth you may as well buy watermelon futures as “paper gold”. Physical gold is something you keep and don’t tell anyone about. I would not advise anyone to break any laws but there are ways, I am told, to buy gold anonymously with cash. For a total breakdown, silver is required for daily transactions as gold is too valuable to buy dried beans and cornmeal with. One ounce silver rounds and $100 face value of 90% US silver coins will keep you alive when nothing else will.
Posted By Mike Valdosta, GA: November 6, 2008 11:55 am

On Sept 11,2001, gold was around $300 per ounce. Now it’s around $740, at the low end of the recent trading range.
Retirees are about to be put on a roller coaster ride between deflation (thanks to our currently sinking broader economy) and hyperinflation (once investors address the mega-bailouts, and the dollars Ben has been printing and dropping from his helicopter). As with many other things in life, it is all about timing. What we will need to survive this ride are cash during deflation and gold during inflation.
The only thing left holding up the stock market now is the theory of anti-gravity, that is, “things may go down temporarily, but in a short period of time, they must go up again”. That was the last 30 years. What is really happening is a black swan that will be the Mother of all paradigm shifts.
Posted By Wake Up, Burlington, VT: November 6, 2008 11:46 am

Unlike the US Dollar, Gold is limited in quanity. Generally speaking, the less there is of something,the more it is worth…..
Posted By T, Plymouth, VT: November 6, 2008 11:39 am

Does anyone know why the price of Gold went from $35 an oz in 1971 to $850 an oz in 1975 when OPEC officially priced oil in US Dollars?
Posted By Chris Cantwell Bradenton FL: November 6, 2008 11:32 am

Why not invest in Art then?
Posted By Picasso ~ Poughkeepsie, NY: November 6, 2008 11:31 am

TIPS are indexed to government-published inflation figures, which are ridiculous! TIPS are for suckers. Look for the real inflation numbers–try Shadow Government Stats.
Posted By Michael, Charlottesville, VA: November 6, 2008 11:30 am

I agree with all the arguments posted regarding the long-term potential for investing in gold. Could the author please rewrite and recalculate the information regarding the price of gold and compare it with where the price of gold was 10 years ago rather than where the price of gold was at the start of this year?
Posted By Koen, Nasville, TN: November 6, 2008 11:10 am

You guys are all talking about preserving the purchasing power of your money….well im not a financial advisor but there are instruments known as TIPS (treasure inflation protected securities) that are guaranteed by the US government to hold their value.In my opinion, Gold, as the author clearly demonstrates, is just another speculative instrument that is simply fashionable in turbulent times…
Posted By Gabriel Miami Florida: November 6, 2008 11:10 am

You can tell that the author doesn’t know much about gold.
Posted By Joe, Cary, NC: November 6, 2008 11:08 am

I don’t think that the ETFs necessarily have all the gold and silver that they claim to have.
Physical is the only way to go. And get a gun, too.
Posted By Michael, Charlottesville, VA: November 6, 2008 11:07 am

Dave from Atlanta,
You still have to pay tax on gains from the sale of gold, even if it’s less than 10k. Not doing so could subject you to harsh penalties and in extreme circumstances, jail time.
Posted By Kris, Washington, D.C.: November 6, 2008 11:06 am

Gold should viewed as a savings account, but more importantly, as a sound money savings account – not a dollar denominated one.
In other words, the dollar value of your bullion will fluctuate and you won’t of course earn any interest on your bullion, but you are getting something very important in return. Gold is an inflation hedge because it preserves purchasing power over the long-term. Also, gold is a catastrophe hedge because it does not have counterparty risk. That means gold’s value is not dependent upon some bank’s promise and creditworthiness. Both of these attributes of gold are important in the best of times, but they become particularly important when you are saving for that proverbial rainy day. Right now there is a downpour on Wall Street, and this storm is spreading
Posted By John Anderson mahtowa MN.: November 6, 2008 10:46 am

I was one of the few financial planners who recommended adding gold to one’s portfolio to the tune of 10% in 2002-2003. I advised other planners to recommend this to their clients also. Now take the long view of investing - $300 per ounce (share) in 2003 to current $750 per ounce (share). Without even mentioning the money market (.5 to 2% interest rates), what other investments have done this well since 2003? Housing? Stocks? Bonds? Where are the high-quality money market funds and how secure are they? The bias against gold seems to permeate magazines such as Money Magazine (of course, look at their advertisers). The long-term purchasing power of gold versus the Federal Reserve Note monetary unit is the real crux of the argument. I don’t think this article serves its readers well.
Posted By Ken, Waynesboro, Ga.: November 6, 2008 10:39 am

I guess, Gold is the only thing on this planet that can be cashed anytime anywhere in any country. You can’t say dollar is not attached to gold. everytime dollar goes down, gold goes up. Internationally people look at dollar in terms of gold.
Posted By John, Milwaukee WI: November 6, 2008 10:33 am

I bought gold when it was less than $300. I am pretty sure I am going to make money on it. If not, I assume everything else I buy (energy, food, etc) will also be a lot cheaper. I win either way.
I find that when many money experts advocate diversification, they still tend to focus on stocks and bonds. My view is more broad than that and it has served me well. Did you know some savings bonds (series I) are earning over 8% now and have earnings since issue of over 6%?
It is a good idea to diversify, better so if over a truly broad range of instruments, not just what the finance experts say. But be wise and exercise moderation. No beanie babies and the like.
Posted By David, Albany NY: November 6, 2008 10:28 am

You talk about getting in and out at the right time.Trying to time the market isn’t too bright.Just in case you don’t know it, Banks are buying up gold…Go figure.
Posted By G.Stanicki,Penn Forest,PA: November 6, 2008 10:27 am

Dave, selling gold at a profit is taxable, whether or not the proceeds total less than $10,000. Just because it’s easier to cheat on taxes doesn’t mean it’s legal. If the IRS audits you and sees several $7k, $8k, or $9k cash deposits that you can’t explain, you’ll get socked with taxes AND penalties on every nickel. Leave the roulette for Vegas.
Posted By Bill, Rockville, MD: November 6, 2008 10:27 am

I wonder how many of you have actually invested in physical gold. Gold is not a thing like stocks - it’s much more difficult to store and haul around. You are to pay full income taxes - not capital gains tax on gold - regardless of the amount sold - you may not be reported until over $10K but you still owe taxes. Also, when physically investing in gold you pay large spreads (commissions) that can really eat into “profits” along with dealers that may not deal in fair honest pricing. Yes, gold is a great investment if you bought back when it was $238 an ounce in the Clinton age but now is it still a good investment? Now is the time to sell - not buy.
Posted By Michael B, Phoenix AZ: November 6, 2008 10:21 am

Gold has doubled in the past 10 years while the market has done nothing. This of course proves nothing as we are more concerned with what happens in the next ten years then what has occurred in the past. I personally believe 5% to 10% of everyone’s assets should be held in gold.
Posted By mark atlanta ga: November 6, 2008 10:09 am

This is a horrible argument.
If I started to buy DJ Index at 13000 at the begining of the year, where would I be now?
The price of gold is tied into the USD strength. Now, don’t look at the absolute dollar value; look at the purchasing power. In the end, that’s all we care.
Posted By Johnny, Humble, TX: November 6, 2008 10:02 am

You tell folds to think long term and then, proffer flawed advice. Over the long term, gold is an excellent store of value. Shorter term, gold is volatile because often it must be sold to cover other positions. But unlike stocks, one can rest assured that it will have some value, even when most other things have gone bus. I recommend holding gold as a long hedge, at about 5% when prices are abnormally high to 15% when prices are far below trend.
Posted By David, Watson, OK: November 6, 2008 9:56 am

You can buy and sell gold coins and bullion through dealers and you don’t pay taxes on them when you sell, unless it’s over 10k….also gold is tied to stability because once upon a time a dollar was backed by a dollar of gold in fort knox, until nixon took us off the gold standard…now a dollar is worth maybe 25 cents of what it was. while gold is valuable in any country, the dollar may not be in the future.
Posted By Dave, Atlanta, Ga.: November 6, 2008 9:52 am

gold is in a downtrend
Posted By skipper x, NJ: November 6, 2008 9:52 am

Look at gold over the long term and you will see that it is a store of value. Over any short haul, though, it can be volatile because it gets sold to cover positions, just like any other holding. Nevertheless, gold should be held as a long hedge, at about 5 per cent of any portfolio at high gold prices and 15 percent when it drops way below trend.
Posted By Anonymous: November 6, 2008 9:51 am

And Josh, I bet you have a good portion of your money sunk into gold, which doesn’t make you any more a viable resource either- or the people you listen to. You can either “listen to opinions of what is best” or be rational and look at the numbers, which this author has done….
Posted By Mike, Cedar Rapids, IA: November 6, 2008 9:49 am

Which is volatile against which - gold against the dollar, or the dollar against gold? Perhaps you should have instead mocked the dollar’s “reputation as an anchor of stability.”
Posted By tanker, new york, ny: November 6, 2008 9:45 am

I love these guys that write for major news outlets such short sided views. Telling someone they should own gold now is like telling someone right before the great depression not to buy gold. Look at the japanesse! We are doing the exact same thing as them, and 20 years later their market hasn’t even closely recovered from the highes. More money will eventually = more inflation with more inflation your current dollars will be worth less. Does anyone actually think the next president will decrease our national debt?
Posted By Nick Smith, Peoria, Il: November 6, 2008 9:39 am

I think the question was more of a hedge against the world economy collapsing. Gold is a very good place to put your money if you have minimal faith in the banking industry or are worried about any type of financial collapse. Gold has always kept its value in accordance with the economy. For example, in 1950 gold was trading at $40 per oz. A good suit cost approx $50 back then. Today a good suit can cost $750. As long as you are taking physical delivery and not playing with futures, investing in gold is a great idea.
Posted By Edward NY, NY: November 6, 2008 9:38 am

Thank you Josh. This guy mentions nothing about physical shortages or trading on the COMEX. Incredibly simple analysis. I hope no one takes it to hear. Besides you want to buy on the dips anyway. I’d say this was a dip. Inflation will reintroduce itself with fervor after all the money pumped into the economy snaps back on us.
Posted By Steve, Toledo Oh: November 6, 2008 9:37 am

Good analysis. Also, keep in mind that gold is taxed as a “collectible” at a much higher tax rate that equities (28%).
Posted By Woeful: November 6, 2008 9:04 am

A recent radio ad predicted gold could hit $2000 an ounce. By my rough calculations if you had bought at the peak around 1980 at $2000 an ounce you would be just breaking even after inflation is taken into account.
Posted By David Freiman, Philadelphia, PA: November 5, 2008 10:27 pm

This seems like a pretty naive short term opinion of gold. Gold has long term value as a form of wealth (which will be here longer Fannie or a Gold Eagle). The reason for the volatility is because it is tied up in the rest of the market. Huge Hedge funds are selling positions and short selling etc. Try to buy physical. YOU CAN’T and if you do manage to find some you are going to pay a hefty premium. Please do more research than simply reading some guy on CNN.com. He’s probably getting paid by the same hedge funds I talked about before.
Posted By Josh, Denver Colorado: November 5, 2008 5:44 pm
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