Wednesday, January 11, 2012

Gold, line, and sinker

As an avid listener to talk radio, I have to say that there is one kind of commercial--common to pretty much every right-leaning show out there--that really grates on my nerves: the "buy gold" commercial. In some markets, such commercials are not enough, as there are even paid infomercials with people hocking gold.

There's nothing wrong with owning gold, in my opinion. It can be a very sound choice as an investment. And as everyone knows, it's gone up in value pretty dramatically over the past decade, or so. Currently, it's in somewhat of a trough, but it might rebound back to previous highs. It also might not.

But as an investment in 2011, gold actually failed to beat out long-term U.S. treasuries. I not this because the typical "hook" for these commercials is that gold performs better than the market and U.S. treasuries. Sometimes, that's certainly the case. But as a rule? No.

For 2011, gold was up overall some 13%. (long term treasuries were up over 14%). That's certainly better than the Dow. But then, why compare gold--a single asset--to the Dow? How does it compare to individual stocks one might but? For 2011,  Exxon-Mobil was up a respectable 15%, Apple was up over 24%, and Starbucks was up a staggering 40%.

Investing in any one of those blue chippers would have been a smart move, but also a relatively safe one. So, where is the magic of gold, here? It's just another possible choice, but at the end of the day it's just metal. And it's value rises only so long as people want it, demand it. And that demand is predominantly about hoarding, not industrial use.

But again, there's nothing wrong with owning some. Just recognize that the people telling you how great it is aren't doing to benefit you. And don't accept the nonsensical idea that gold is something so special, that it's value is eternal, and that you can't lose by buying it.

Cheers, all.


  1. Robert, like all good investments you buy when out of fashion. Gold is at historic highs right now and the only folks making money are those selling their gold.

  2. That's certainly true, Roger. But it's infuriating to me to hear those spots. Even worse, sometimes the personalities--like Hannity and Beck--do live spots touting gold. They should have more respect for their listeners.