PERSONAL FINANCE 803 views
John Wasik, Conributer
Before you gold trolls start hurling cyber-insults at me, I have to confess upfront that I don’t mind if anyone owns gold. I have a few coins myself.
But I don’t think gold is a good investment. There are lot of people getting scammed into buying it in various forms. With the recent presidential election, the fear factor is once again in play.
My reasons for not seeing gold as an investment are straightforward. Unlike a bond, the metal pays no interest. There is no dividend. It may not protect you against the worst forms of inflation, which are often in health care. And there is no implicit guarantee that it will appreciate in value.
I know this describes most investments. But at least if you invest in a basket of major stocks, although not guaranteed, you are likely to receive dividend payments. If you buy gold bullion or coins, this is not the case.
And I also acknowledge that investors are wary about paper currencies. Sure, they are based on the faith and credit of a government, but U.S. Treasuries Securities have never been defaulted upon in anyone’s lifetime. If that were to happen, the entire world financial system would collapse — and gold wouldn’t do you much good.
Gold’s value, for the most part, is based on fear. Investors buy it when they think currencies are shaky or whole economies are wobbly. But ever since the disastrous crash of 2008 — with Europe and the U.S. struggling to recover — gold has been a poor investment.
In a low-inflation environment, gold and other metals are not going to help you. The cost of money and demand for credit is low, keeping interest rates in check. For most of us concerned about the cost of living, these are pretty good times.
Yet gold bugs peddle uncertainty. They assure you that you can make money because times are bad and are getting worse. Although you can always make an argument for that, the opposite is true. The U.S. and Europe are still recovering. Credit is tight, but not expensive. Corporations are still making profits.
This fear over the economic future fuels numerous gold scams. Dealers may be pushing coins, bullion or stocks in mining companies.
Brokers love these vehicles because they make money on commissions. The more products they sell, the richer they become, particularly when investor sentiment is skittish. They charge more for gold-based products than the actual price of the metal.
If you choose to invest in gold, be smart about it. Here are some buying guidelines from the Federal Trade Commission:
– “If you are buying bullion coins or collectible coins, ask for the coin’s `melt value’ – the basic intrinsic bullion value of a coin if it were melted and sold. The melt value for virtually all bullion coins and collectible coins is widely available.
– Get an independent appraisal of the specific gold product you’re considering. The seller’s appraisal might be inflated.
– Consider additional costs. You may need to buy insurance, a safe deposit box, or rent offsite storage to safeguard bullion. These costs will cut into the investment potential of bullion.
– Some sellers deliver bullion or bars to a secured facility rather than to a consumer. When you buy metals without taking delivery, take extra precautions to ensure that the metal exists, is of the quality described, and is properly insured.
– Walk away from sales pitches that minimize risk or sales representatives who claim that risk disclosures are mere formalities. Reputable sales reps are upfront about the risk of particular investments. Always get a receipt for your transaction.
– Refuse to “act now.” Any sales pitch that urges you to buy immediately is a signal to walk away and hold on to your money.”