Rachel writes in with the following question about investing in gold:
I enjoy reading your blog about wise spending. I have a question and I’m not sure who to go to. My husband is interested in investing in gold. What are your thoughts on investing in this direction? Do you have other sources that you lean on for investing advice?
Photo by Muffet
Rachel, your question comes at a good time. I spend a lot of my day listening to a variety of talk radio programs at work on subjects that range from sports to politics to personal finance. All three tend to run a lot of advertisements for investing in gold. While intrigued, I confess to not knowing much about investing in commodities, so to answer your question I decided to dig into some research while asking the Frugal Dad community for help with your question.
Why Invest in Gold?
A recent check of gold prices shows it is hovering around $1,000 an ounce. It seems like every week or so gold prices set another record. But in the world of economics, it is usually true that what goes up, must come down. That’s not always the case, but I wonder if gold prices will work the same way.
As the market moves ever-so-slowly towards recovery, will gold prices remain high? Who knows? Conventional investing wisdom says gold is a safe bet when times are tough (inflation, weakening dollar, etc.). We’ve certainly had tough times, but to this point it seems inflation has been kept in check. I’m not completely sold on the idea our government will be able to control devaluation of the dollar as more and more money is pumped into the system.
So the real question is, “Is now the right time to invest in gold, or would investors be getting in at the top only to see their investments disappear in a recovery?” I think the answer to this question is the same answer I give to others interested in any form of investing: Invest for the long term, don’t try to time the market, and diversify.
If you’d like to pick up a few gold coins, or bullion, as a percentage of a broader long-term investment portfolio, that seems reasonable. If you dump your entire nest egg in gold, betting on the continuation of tough times, well, that just sounds too risky for my liking.
Ask the Readers: OK readers, I know there are plenty of you out there smarter than me on the subject of investing in gold. What more can you tell Rachel about gold investments? Is it better to invest in physical gold, mutual funds, etc? What are your thoughts on the timing of making new purchases of gold? Feel free to make any specific brokerage recommendations you may be familiar with as well.