Gold Tops $1,000 an Ounce

Gold investors have bid up the price of gold to over $1,000 an ounce after country-after-country around the world have lowered their benchmark interest rates, passed sweeping stimulus packages, and nationalized banks in an orchestrated effort to combat the global economic recession.  Gold, the fallback position for investors for centuries in times of turmoil, has suddenly become perceived as a safe-haven investment drawing in new buyers globally. The gold bullion industry which is quick to self-promote and issue dire warnings about economic chaos will likely continue to prosper as many market analysts are forecasting that gold could continue to rise in price as demand increases. What was once the domain of late-night infomercials is now becoming mainstream advertising in print, online, and over the radio airwaves as gold promoters attempt to find new customers.

American facing 30%, 40%, or even 50% losses in 401K retirements plans, profit-sharing plans, and college savings plans may be justifiably tempted by the gold bug. But just like any commodity, gold is subject to wild price swings. Just last year (in March) the price of gold skyrocketed to over $1,000 an ounce - only to fall back again in the summer to $650 an ounce. So while many gold promoters may call buying gold coins a “hedge” or a “safe haven”, in actuality it is not that much different than buying a volatile stock which is very sensitive to the global economy. Selling gold is a huge industry that feeds off of paranoia and fear, two emotions which are easily invoked today.

We sometimes picture gold as this super-safe commodity destined to survive the ages and guarded carefully by our military….

Fort Knox

 
However, the reality is that gold is a highly volatile investment that may be appropriate as a hedge in some portfolios, but should not be considered as an alternative to bank deposits like money market accounts, savings accounts, checking accounts, or certificates of deposit (CDs) which are backed by the FDIC to up to $250,000 per depositor. So despite those savings rates at 2% or 3% or those lousy returns from the stock market, consult with your financial advisor before catching the gold bug.