Is Gold Really That Great an Investment?

By Miranda Marquit

February 11th, 2009

Posted in Commodities, Funds, Investing Trends, Investment Opportunities, Investment Portfolio

Right now, there is a lot of talk about how gold is a great investment. Due to the current economic climate, there are two main arguments gold bulls make regarding gold:

It is a good safe haven investment, since it is tangible. Additionally, gold often moves inversely to the U.S. dollar, so when currency markets are having issues, gold is a safety. And, of course, the true die-hards point out that only the tangible assets will be worth anything when the current system completely crashes.
It is a hedge against inflation. This is the other big reason that many gold bulls invest in the precious metal. As the economic stimulus package moves toward reality, the increase in the money supply is expected to lead to inflation. Gold is supposed to help take the edge off.

However, it is this 2nd assertion that can be found in an article about gold investing myths. Stock Trading To Go points this out about gold as an inflation hedge:

By many historical estimates, gold should be around $2000 /ounce now. Most gold bugs believe that CPI understates true inflation and gold should be in the thousands. However, gold is at $9xx /ounce currently and if gold really was in fact a true hedge against inflation the market would’ve taken gold to $5000/ounce already.

It is an interesting argument against gold as an inflation hedge. Here are the other myths that the article debunks about gold as an investment:

Financial meltdowns help gold.
Recession is good for gold.
Conflict/war is good for gold.

Gold can be a profitable part of a diverse investment portfolio, but — as with all investment trends — it is important to take a minute and re-evaluate the conventional wisdom to see whether it actually applies.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

Gold unexpectedly not shining as investment (msnbc.msn.com)
Time for gold to shine? (citizeneconomists.com)
Protecting Your Portfolio from Inflation (businessweek.com)

Money & Investing – Banks.com