THE PRICE OF GOLD CAN GO DOWN (REALLY!)

It might be true that gold has been a phenomenal investment over the last 7 years or so. As you can see in the chart below (from goldprice.org) the cost of gold has gone up dramatically starting at about 2005 to the present. But how about the 14 years prior to that?



In the 14 years from 1991 to 2005, you can also see in the chart that gold went almost nowhere. At many points in that time span, any investor in gold would have lost money because the price went down about 6 of those years.

So while gold is soaring now, it hasn't always been that way and anyone that has put money in it and held for 20, 30, or 40 years hasn't really done as well as the experts would have you believe. You hear ads all the time on the radio and see them on television: gold is going to $2000 per ounce or even $4000 and ounce and you better get in right now! But this is all hype and speculation made a bit more believable because of the recent run up.

But investors should know that gold can go down and has gone down in its history. Advertisers want you to believe that gold only goes up and you better jump on the bandwagon to protect yourself from inflation and anything else that is bad out there. Of course these peddlers of gold coins and gold bars will profit if you go to them and that is why they are advertising to get your business.

I am not saying that gold will go down from here: I am just saying that it CAN go down and sometimes it is hard to remember that through all the hype. The longer you have held the gold you have now, the worse the investment has been for you. Only those people that have bought gold in the last 7 or so years have done exceptionally well. Also remember that you should have balance in your portfolio and that means a variety of different investment types and industries you are betting on. Don't put everything in gold unless you really want to gamble.

THE VALUE OF GOLD AND SILVER COINS

I have a short video you can see below of a gold coin and 6 Carson City silver dollars I got from my Mom's house. In the video I show how much they are going for on Ebay which is a pretty fair judgement of what I can get for them.

My belief is that the Grant Wood American Arts gold medallion is worth around $1,100 and I think the value is based on the current cost of gold. In other words, the value of it is dependant on the price of gold and NOT on the rarity of the coin or the collector's value.

I think it is a different situation for my 6 Carson City silver dollars. I believe those are collectors items as they are a piece of history. Some of the value comes from the silver but most of the value comes from the fact that there are only so many of them and collectors want them.


I am wanting to obtain gold and silver as insurance against more bad things happening with our country and economy. If hyperinflation or something really bad happens, my thinking is that gold will maintain its value but those 6 Carson City dollars will not because they are only valuable for their historic value and not the actual value of the silver in the coin. If I am wrong about any of this please let me know.

IS OWNING GOLD STOCKS THE SAME AS OWNING REAL GOLD?

This is a crazy world here in 2010 and it is extremely difficult to know what to do with your money. Uncertainty is everywhere from terrorism to company bankruptcies to out of control government spending like never before. If you are lucky enough to have money saved, what should you be doing with it with interest rates so low and the world in such chaos.

The current cost of gold remains over $1,000 and it is a bit scary buying at this level but if you do decide to buy here, what are your options and what are the differences?

Buying gold coins or bars is the best way to buy gold if you want to actually own it. Of course, if you do buy it this way, you then have the problem of where to store it and how to protect it. I know someone who is buying gold and burying it in their back yard. Others keep it in safe in deposit boxes and other such places that put it under lock and key. Wherever and however you decide to store it, you are faced with that additional burden that can be a big problem if you own a lot.

For years, many people have been content to invest in gold by buying stocks of companies that mine it. If the price of gold goes up, usually so do the prices of these gold company stocks. During the big stock market meltdown a couple years ago for instance, most gold stocks performed much better than most other stocks that were in different businesses.

Right now though, it seems like a more shaky time than ever with the economy and our government as well as big businesses piling up the debt. If things continue to deteriorate and/or there is a successful terrorist attack, what will that do to our way of life? Will owning gold stocks be just as good if this happens as owning the actual gold itself?

When you invest in stocks, all you really have is a piece of paper to show for it. Others may argue that point but in my opinion all you have is paper. If things with the economy get really bad, won't all companies suffer including companies that mine gold? Even though they may be in an industry that is doing well, won't the overall crumbling economy impact their ability to do business? Won't it be harder for them to get loans and rely on contractors? It seems that if things get really bad, you might want to own real gold as opposed to just a promise on paper.

I think that there is enough uncertainty and mismanagement of our countries finances that owning real gold bars and coins is the way to go rather than buying gold stocks. If we do climb our way out of this debacle it probably won't matter but if things continue to deteriorate, owning real gold is what I would feel most comfortable with. What do you think?