The World Ends Tomorrow, Buy Gold Now!

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The Real Deal on Gold

Investing in Gold: Separating Reality from Advertising Hype

Does runaway government debt, the global economic crisis, and the price of gasoline strike terror into your heart? It should! Leading economic experts (mostly the marketing guys at our company) indicate we’re fast approaching a worldwide financial meltdown.

Paper currencies as we know them will become as worthless as Monopoly money. Ditto stocks and bonds. We really, really mean it. Oblivion is just around the corner. Chaos! Madness! Dogs and cats living together!

In the Mad Max world that’ll probably be here tomorrow (Friday at the latest), the most practical way to preserve your hard-earned wealth is, yes, hoarding gold bullion. Call us today and we’ll show you how!

I know. A bit over the top, right? But the actual ads for investing in gold aren’t all that different from this kind of silly doom and gloom. Marketers know that FUD (fear, uncertainty, and doubt) is a powerful selling tool, and when it comes to selling gold during challenging economic times, FUD rules.

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So here’s the real deal on gold, minus all hype and doomsday.

Gold: you’re so money

Gold is definitely a hot and much-hyped investment lately. In the past four years it has roughly quadrupled in price. In early 2007 gold was trading at about $600 to $650 per ounce, and as of this writing it’s currently trading at $1,440. How the heck does that happen?

Traditionally, gold has been perceived as a safe place for investors to store funds they would otherwise have in cash or cash equivalents (money market accounts, short-term US Treasuries, and so on). This is especially true when the specter of currency instability or inflation may be looming—gold is seen as being highly resistant to swings in relative currency value and inflationary pressures. In the past few years we’ve had a perfect storm of factors contributing to an increase in the demand for gold. Here are just a few:

  • With US public debt at high levels there’s less confidence in US Treasury Bonds, the global standard for risk-free capital preservation. As a result many investors have re-balanced their portfolios out of US bonds and into larger positions in gold.
  • The worldwide financial crisis has caused some volatility in the major (and typically stable) currencies like the US dollar, Euro, and British Pound. Gold has a reputation for being a ‘safe harbor’ during times of currency uncertainty.
  • The new rich in Russia and China love to buy it.
  • It’s easier than ever to invest in gold. Gold-based ETFs (exchange-traded funds) allow individuals and institutions to invest in gold without the hassle of dealing with those heavy bars and coin-filled treasure chests.

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So should I buy some?

That’s a tough call—ask four experts and you’ll get five answers (there’s always one guy who speaks out of both sides of his mouth). And if I could predict the future of gold prices I wouldn’t be writing this, I’d be on my private island hanging out with supermodels and movie stars, right? But market history tells us, pretty clearly, that asset price growth like we’ve recently seen in gold is not sustainable over the long term. There’s no magic investment out there that will grow 20 to 30 percent every year forever—just doesn’t happen. If you have any doubts just ask Bernie Madoff’s clients.

Do a little research (and NOT on websites offering bullion investments) and you’ll find many experts believe the ‘fear premium’ of gold may be as much as 20 percent. This means gold prices could actually go down as the global financial crisis wanes.

But I really, really want to buy some

Now I don’t want to turn anyone off from investing in gold or other precious metals. The reality is gold and precious metals offer a great way to add to your portfolio outside of traditional stock and bond investments. Even when prices may be perceived as high (like now), dollar-cost averaging your investment (buying small amounts consistently over time) can provide you with a built-in hedge against sudden price changes.

And although the doomsday ad hype would have you do otherwise, don’t go out and put all your eggs in one gold basket. A healthy portfolio should be diversified across many asset classes like stocks, bonds, cash, real estate, precious metals, and other assets. The smartest investors in the world (those mutual fund managers with the 20,000 square foot homes in the Hamptons) typically recommend allocating only around 5 to 10 percent of your portfolio in precious metals.

So how do I buy it?

Most investment firms offer ETFs backed with physical gold reserves. This may be the easiest way for the casual investor to buy gold without the hassle of storing bullion in a safety deposit box or burying a treasure chest in your back yard.

Investing in gold and precious metals can be a great asset for your portfolio, adding diversification and long-term protection against inflation and currency weakness. And that’s not a bad investment at all, whether the world ends tomorrow or not.

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