Not crazy about Gold, or Gold Investment companies

It seems that every time I turn on the television these days I can’t escape watching another commercial for a gold investment company. If you watch Fox News in particular you might be inundated with anywhere from one to three gold investment commercials per hour, depending on the programming. Whether it is Goldline or Rosland-Capital it seems there are a lot of companies vying for your hard earned dollars with the promise of turning that flimsy money into someting of real value: Gold!

You may wonder why all of these Gold Investment firms have popped up in recent years. The main reason is fear. Gold Investment firms are praying on people who have money by convincing them that the declining U.S. economy will not hold up in the long term and that investing some or most of your money in gold offers you real security. Please do the right thing and don’t give in to your fears. The real truth is that Gold investment is by and large a fraud perpetrated on uneducated consumers.

I should say at the outset that I am not an investment banker. I have some experience investing in a Savings account and short-term bonds but I don’t claim to be an investment expert. But that doesn’t mean I don’t know my  history or a sham when I see one.

The buzz word in investing these days is “diversify” as in diversify your portfolio. The idea is that if you don’t have all of your money in one place you won’t lose it all if one form of investment goes belly up. But diversifying actually runs counter to the idea of investment in the first place. If your goal is to beat inflation then your money needs to be in an area with huge potential gains. In fact now is a good time to invest in the market because the market is down and stands to go up. It stands to reason that the more people invest in gold in a bad economy it will only drive down the price of gold in the short term. You must also keep in mind that no one in the world market is really investing in actual gold anyway. The U.S. currency has value that the IMF and other regulators give it. Gold may retain value if the American economy collapses but under that scenario what will you sell it for? If Gold doesn’t have value in the U.S. market and you are a U.S. citizen then it has no value.

You must also keep in mind that Gold investment firms usually do not sell you real gold anyway. They sell you Gold Bonds or certificates that hold the place of gold. But these bonds aren’t necessarily backed by the government and if these investment firms falter you may get nothing for your investment. Even if a gold company sells you real gold they will sell it above market value in order to make a profit. You would be better off in most cases shopping on Amazon for rare comic books and antiques.

In the 1880’s President Cleveland sought to improve the U.S. economy by selling U.S. bonds backed by gold. The problem was that the bonds sold were so expensive that only the wealthiest americans could buy them and soon J.P. Morgan and other investors owned most of the U.S. treasury. The U.S. government responded by printing more money, selling more bonds, and eventually taking us off the gold standard completely. One lesson from this is that the U.S. market can offset the value of gold and has done so previously. Even in gold investing their are no sure things.

It is not easy to sell gold quickly and for a good price. And you can’t go out and spend it or buy a house with it or invest it quickly in another asset. It is true that gold will always have some value. Like silver or diamonds, assets that take time and energy to mine are rare and thereby worth something to most people. But few Americans can afford to buy enough gold to really invest for the future, particularly if the market crashes.

I know the U.S. isn’t doing so hot right now, but trusting in the American economy long term is still the best way to go. Gold investment firms are praying on people’s fears so that they can make a profit for them, not you. 

Something to think about,

Jack B.


2 Responses to “Not crazy about Gold, or Gold Investment companies”

  1. 1 Jen
    June 25, 2010 at 12:09 am

    The reason why people are buying gold is because of the fear of their security. It does seem to be the only item that is increasing in value on the stock market. I can understand their frustrations and fears. Retirements are dwindling as inflation increases.

  2. 2 Sarah
    July 23, 2010 at 1:44 am

    Gold can be a good thing if you purchase it right. Not with the certificates or bonds, but purchasing the actual gold pieces. Of course if there was complete and total economic destruction or the end of days came it would be worth nothing but times like this and times with high inflation, it is good to have. That being said, yes alot of those companies are full of crap.

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