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Golden moment or golden growl?

Does gold have a positive or a negative effect on your life?

Seems like a strange question to ask, but bear with me.

Gold is known as a hedge against inflation. Prudent financial advice says 10 percent of one’s investable funds in gold is a good idea.

Why?

Gold is a safe haven. It rises when other investments fall.

It often provides capital gains when Wall Street’s equity shares are dishing out capital losses.

So far so good.

Actress Mae West said too much of a good thing is a pleasure.

Some gold buyers follow West’s advice.

If 10 percent gold is good, 100 percent gold must be great.

As long as the price of the precious metal is rising, these buyers look like geniuses.

But a funny thing happens to these all-in gold buyers. They start to worry. Instead of providing prudent diversification, gold becomes the whole show and a great risk.

Since gold tends to rise in times of panic and uncertainty, the first step for worried all-in gold owners is to look for panic and uncertainty in everyday news.

If that isn’t enough, they try to sow panic and uncertainty among individuals who wouldn’t otherwise give it a thought.

All this is to goose the price of gold and allay their own worries about being concentrated in one asset.

This robs gold of its primary function – that of being a hedge against financial uncertainties and worries.

So gold owners who happen to be worried need to examine the source.

Are the worries hedgeable with gold, or is gold the root source of the worry?

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4 Responses to Golden moment or golden growl?

  1. truth says:

    If you bought gold march 2009 you are up half as much as you would be if you had just bought the SPY.

    If you bought the russel 2000 instead of gold at that time, you would be up around 150%… versus 45 percent for gold.

    So… yeah… buy gold! clearly the best investment… ????

  2. Scott says:

    O.K. wise guy, Go back and run the numbers for buying gold 8 or nine years ago and you’ll get a completely different perspective. Gold has ALWAYS been real money and ALWAYS will be. That government monopoly money has no real value and it will eventually be totally worthless, except for use as toilet paper.
    I don’t think the Chinese are nearly as worried about their gold investments as they are about the value of the U.S. Dollar.

  3. truth says:

    The facts I mentioned were meant to respond to this statement in the article:

    "Gold is a safe haven. It rises when other investments fall.

    It often provides capital gains when Wall Street’s equity shares are dishing out capital losses."

    This statement is very misleading. During the 2008-2009 crisis, stocks fell from around August 2008 to March 9, 2009 – which is only 7 months… while gold went up a bit during that time, the facts I mention show that just saying that is completely misleading as to how gold really compares to stocks as an investment.

    Sure, gold may go up a bit during crisis – but you will always make more money buying stocks. That’s exactly what happened during March 2009, when Citigroup was finally bailed out and QE was mentioned – up until then, hedge funds were afraid that it might be allowed to fail and that’s why the crisis laster as long as it did. Stocks took off like a rocket immediately, and have not looked back.

    The S&P 500 is up over 100% since then.
    The Russel 2000 is up over 150% since then.
    Gold? 45%.

    If you bought certain individual stocks around March 2009, your gains would be multiples of the index gains.

    Gold may go up a bit during crisis times, but as soon as the crisis is over stock investments will easily outperform it.

  4. Mark says:

    Stock inevestments won’t always out perform gold. We can always take certain periods of time out of context to prove a point. If you bought gold in 1980 for $650 to $700, (it was only over $800 for a few hours) by 2000 you lost money and stocks had a great 20 year run. That was the time to be in stocks. From 2000 to today, stocks are up only 25% so after inflation, everyone lost money. Gold in that time went from $275 to $1,430 a gain of over 500%. Gold was at a fixed price of $35 in 1971 when Nixon closed the gold window. It is now up over 40 times since then. The Dow would have to be over 30,000 to have kept up.

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