Monday, December 29, 2008

Maybe Gold isn't the Perfect Investment

Fradulent housing refi offers have disappeared from my mailbox and I just have to do something to fill the void, and I need to avoid shooting off my mouth about Israel honing the art of over-reaction as I don't know enough about that very deeply tangled situation. (Few do.)

Terri has been listening a lot to Air America and other liberal radio networks which is on AM radio on Green 960 (used to be called The Quake which is a much better name). I love it and really, really hate the ads. Even the legit ads like Laurel Langemeier's, sound like snake oil. Most of them are based on half truths and it drives me nuts. I'm forever shouting at the radio "That's NOT true!" which amuses Terri at least.

So I should spend time analyzing the ads, but it takes more time researching it than a simple fradulent refi offer that shows up in the mail, so I won't be able to do it as often.

But here goes. One thing I really hate is that they sometimes pay the announcers themselves to read the ads. These are people whose opinion I respect and I really resent that I suddenly have to carefully filter what they're saying (I'm sure they hate it too). One ad nearly all of the radio hosts has read is about Buying Gold with ITM Trading (and other companies).

The claim and implication is that gold is a great stable investment especially given that the dollar is down, the economy doing poorly, and with "geopolitical concerns" and that "some experts" claim that "gold's rise has just begun." After I'm done loudly exclaiming "WHAT rise??" I wonder just what the heck they're talking about. I've noticed that the ads change slightly every, so often just to keep the spin going.

If you bought gold in 2001 when it was under $300 an ounce, you'd be doing pretty well especially if you sold it around March of this year when it was in the high $900's. Now it's hovering in the $800's.

The trick with gold is that the prices are generally all over the place (I'll be referring a lot to the charts on the left - click to enlarge), much more so than the stock market which over the long (long) run tends to trend upward. Gold and other precious metals like silver, trend up and then correct steeply downward. If you get that wrong, it will hurt. An example (again, see the chart) is in 1976, gold was around $150/oz and if you bought it then you would have seen it go as high as $750/oz in 1980. But what if you had bought some right then (since it was clearly the thing to do). If you did - I'm so sorry. It plunged to $350 and for the next 19 (!) years has stayed between $350 - $450.

You would have been much better in the stock market even through the dot com crash and maybe even now. It's not that gold or other precious metal are a bad investment, from a diversity point of view it's fine. It's just not the (ahem) silver bullet that it's being pitched as. I personally have no idea which way gold will go. Given that the stock market is doing so horribly, it will probably trend up some, but there's been so much loss of cash that people don't have quite as much money to spend, so I really have no clue. The reason they're advertising so much is that they know that people are disenchanted with the stock market and are looking for other places to put their money. AM radio advertising is all about selling a dream which is a theme I'll be coming back to over and over. When evaluating investments it's really important to look at the long term.

Basic disclaimer, while I'm a fan of analyzing pitches, scams, and other financial lures, I'm not a certified financial expert by any means. Before investing please consult with a financial expert - one that you pay them for their time and who has nothing to sell. Remember that Free is rarely Free.

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