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27 October 2010
Posted in
Finance
I can’t count the number of times a client, friend or family member has asked me if they should be investing in gold. Stop and consider.
Our nation’s economy has nosedived from heights where it hadn’t been before and in doing so a a new industry has formed—the "Buy Gold Now" pitchmen. They can be found in every media proclaiming the "SKY IS FALLING!" and your economic lifeline is gold. Not only do they try to scare you into buying gold, but to buy it today before the price soars upward and you miss the boat. What would the price of gold be if noone was listening or acting on their message?
Maybe you weren’t around in 1980. It was a wild time economically in this country. It was a time of the modern gold rush. Everyone had to have gold as a hedge against rampant inflation, which the pitchmen and pundits claimed would last far into the future. The price of gold soared from around $30/oz to a dizzying high of $850. Fortunately for our country and citizens inflation was corralled by changes in our monetary policies and gold prices fell to around $250/oz in 2001.
David Moratta says, [gold] "lost 69 percent of its value over a 21 year period for a consistent annualized loss of 5.5 percent. It didn’t return to $850 until 2008, 28 years later. That $850 in 1980 had the same buying power as $2,249 in today’s dollars. Gold trading at $850 an ounce then was like gold trading at $1,000 more than its current price (around $1,300/oz). Those people who purchased gold in 1980 have lost over half their buying power during a 30-year investment."
Gold can be a hedge against inflation. "On average it stays constant, but only on average", says Moratta. Over the past 40 years gold prices have sometime swung wildly.
If history is any precursor, will you be satisfied with an investment that grew less than 50 percent since 1980 while inflation rose 165 percent or more?
Remember, it may be pretty to look at and lovely to behold, but gold can leave you feeling mighty cold.
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