6th Post - Gold

A very tempting choice for a lot of people right now is Gold. Currently gold is selling for $843 an ounce. You will hear a lot of gold salesman coming out right now since gold usually sells well when the economy tanks, because it can be a hedge against inflation. They will start making the argument that the fiat currency such as the US Dollar is going to die and gold will reign supreme and we will go back to the gold standard. Even though I think going back to the gold standard might be a good idea instead of having faith based money as we do now, I don't see it happening since the banks would hate it. I see a lot of analysts saying gold will be going over >$1000. See example here. They will give you lots of reasons why gold will go up. Some of these reasons are valid and some are not.

Why I don't buy gold.

• Gold is a speculative investment. It is exactly like a stock, it can go up or down. Gold was $999 in March and $720 in November 2008. There are no dividends associated with gold.
  

• Buying gold is not simple. You can buy physical gold, but then you have to store it and keep it safe. You can buy ETFs. ETFs usually store gold as backing, but they might not have enough so if the ETF does go bankrupt, you may or may not get your portion of the gold. One popular ETF is GLD. There are different types of gold also.
  

• I don't understand it properly. As I have said in my previous posts, I like to buy hard assets, and I would consider gold a hard asset. However, unlike real estate which I understand, gold is very complicated and there are many ways to buy it, and many different forms of gold to buy. The easiest would be an ETF, and that is what I would recommend since that is the easiest to buy and sell, but if you are thinking that the US govt will go bankrupt, maybe the ETF might not be the best in that case, you may want to actually buy physical gold. Here is a good place to inform yourself about gold. The site is also biased since they are promoting gold, but they do describe the differences in gold. Not understanding something is not a good excuse not to buy, since you can always educate yourself, but for me I find it just too speculative for myself.
  

If you feel gold will go up and decide to buy it, just make sure you educate yourself before buying it. One word of advice: Be weary of buying it when it is the "hot" product as it is right now.

Update on Gold 2/20/09. Gold hit $1000 an ounce today. I don't know if it is too late to buy, be careful if you do. In the short term, it does seem that it will go higher as the economy keeps tanking.