photo by motoyen
Written by Nathan White, CFA
Several people have asked me about gold lately.
They are curious as to whether they should buy it or not. After all, it is hitting new highs. It seems like they all know someone who bought it around $300 an ounce.
I hear radio advertisements all the time that tell people to buy gold because of- the usual litany of fears (i.e., dollar crash, inflation, etc.) The last time I heard things like this was during the tech bubble when everyone wanted Internet gold.
What happened to gold investors last time people were buying for today’s reasons?
A recent article from Bloomberg.com by Nicholas Larkin and Millie Munshi provided some interesting insights. Those who bought near the peak in January 1980 on an inflation-adjusted basis are still 79 percent away from getting their money back. That is about a 44 percent return over 30 years. The average U.S. checking account rose about 92 percent over the same period with stocks and bonds doing much better.
Gold pays no interest, has virtually no industrial use, and you must pay storage fees to hold it.
It is a purely speculative asset which ironically attracts some of the most traditionally conservative type of investors — go figure.
Do not get me wrong, I am not anti-gold, but at this point, the reward is not worth the risk.
It could keep going all the way to $2,000 an ounce for all I know making me look like a fool for writing this, but the contrarian in me does not like to buy high.
Gold is pricing in all of the fears for which people are buying it. At this point, you are just hoping some sucker will be willing to pay a higher price than you before the game ends.
I would be selling gold at this point, not buying.
What do you think? We want to hear your feedback.
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