Investments: Episode Eight
It seems everyone has gold fever these days. With prices soaring to record highs ($1,269/oz as of this recording) it is a great time to discuss gold as an investment.
Gold is different than many other investment options:
- Gold doesn't generater earnings like a stock.
- Gold doesn't earn interest like a bond.
- Gold doesn't earn rental income like real estate.
Gold is just gold. It's a rock we dig out of the ground, melt down and fashion into any shape our hearts desire. It has value because we believe it does.
People buy gold for one of four reasons:
- Speculation - You buy gold at $1,269 per ounce because you think you can sell it some day for $1,270 or more.
- Wealth Storage and Risk Hedging - In times of economic turmoil people buy gold to store their wealth and hedge against a decline in the purchasing power of their home currency. Gold's value is the same in every country.
- Display of Wealth - Wearing gold jewerly, sporting a full grill of gold teeth or have gold faucets in ones bathroom are always a great way to let people know you are making bank.
- Industrial Use - There are lots of gold plated HDMI cables for sale at Best Buy.
Watch out for the dumb money:
One warning sign I see is that gold's long bull run and blingtastic numbers are starting to make people on Main Street believe that they can't lose with gold. Just last night at a cocktail party a friend (not an investment pro) was telling me how he's swinging for the fences with gold. I hope he wins big time but my fear is that he, and other like him, will get caught holding the bag when things go bad.
What do you think? Is gold going higher? Is it a good investment? How much of your portfolio is exposed to gold?