Should You Buy Gold?

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.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Comments

[Ursula]

That was a very sane and well thought out article. Thank you.

I am sending it to my kids for their background.

[Gordon]

I believe you are right on your 'gold' advice, and reflects why I haven't bought any. Mine is only a personal observation, so it's nice to have it validated. If it goes to $2K per ounce, I'll be happy for those who have held or bought, but I won't be ruing my decision to wait for the next cycle.