As I write this, the price of Gold is near all-time highs. Naturally, the curiosity and interest in buying gold is also at record highs. Several of my clients have asked me recently about investing in gold, and I have responded to their questions with one or more of these 3 reasons not to buy gold now:
1. Gold prices are in bubble territory: In times of economic uncertainty, gold is perceived as a safe place to invest. As a result of the recent credit crisis and deep economic recession, the demand for and price of the precious metal has been driven to extreme levels. In fact, the price of gold has tripled in the past five years.
When any investment type advances in price at such an extreme pace, it is called an asset bubble. The bubbles that may come quickly to mind for most people are the internet bubble of the late 1990's and the recent real estate bubble, both of which ended painfully for investors.
2. Even professionals have a hard time understanding it: Gold has no intrinsic value. Gold does not produce earnings or income and it is not a product or service that has an easily measurable value like cheeseburgers or investment advice. The value of gold is based primarily on the perceived value of the overall market place and perception is not measurable.
3. Your neighbor gave you a hot investment tip: Usually by the time you begin hearing advertisements on the radio, seeing books on how to strike it rich on the latest trend, and your neighbor is bragging about this "new investment tip", it's too late to invest.
Gold can be easily bought as an investment in the form of gold bullion coins, specialized mutual funds, such as sector funds, or Gold Exchange Traded Funds (ETFs). However, if you want to make money from gold, you are probably better off selling the gold jewelry you haven't worn in years at the local jewelry store.
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