Everybody is talking about the price of gold. No matter where you turn, someone is pumping up gold as the end-all-be-all of investing right now.
In the last two years, the price of gold has increased from $867 to $1,450—so what's the deal? And has Dave changed his views on buying gold?
Short answer: Absolutely not.
Think about it: Why would you buy something at its 176-year high? From 1833 to 2001, the compound growth rate of gold was 1.54%. Since September 11, gold has made record returns, averaging close to 16% a year. The gains that gold has made in the last 10 years can't make up for nearly two centuries of poor performance. There's nowhere to go but down—and history supports that.
Many people invest in gold out of fear. Think about how the value of gold has gone up as uncertainty in world economies has increased. With the ever-changing values of world currencies, some people see gold as more stable. But that's just not the case.
Today, like most commodities, the price of gold is driven by supply and demand, as well as speculation. As soon as the economy settles and some of the high political drama stabilizes, the spirit of fear in the air will decrease, and the price of gold will plummet.
When prices are driven to artificial lows or highs out of fear and greed, investors create a bubble. And bubbles will always burst. Investing is not buying something based on fear or greed. At best, investing in gold is speculation. And, at worst, it's gambling.
So investing in gold is a bad idea, but selling it is not! Now is a great time to capitalize on the inflated prices and sell your unused gold and silver. Open up your old jewelry box and pull out those pieces you will never wear again. Use that money for your emergency fund, dumping debt, or investing in a good mutual fund.
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