Gold Revisited - Part One

Michelle Kuehner |

By Gary Silverman

I’ve wanted to avoid this topic. But since so many people think I’m against investing in gold, I thought I’d put the record straight.

That’s how I started an article back on October 30, 2011. And since I was thinking the same thing today, I thought I’d repeat it and add a little commentary at the end. Here goes…

Gold… I’m rather neutral on gold as an investment; I can take it or leave it. However, many folks are not just investing in gold but are selling almost everything else to buy more. This is dangerous. But every investment would be if you expected it to do it all.

In this first installment (yep, this will be one of my multi-part articles), we’ll look at how you go about investing in gold.

Up until recently, people invested in gold primarily by buying coins or bars from gold dealers. This was somewhat of a hassle as you had to 1) find a gold dealer, 2) drive to them, 3) pay a markup for the gold, and 4) get marked down when you sold it. For many, this is still the preferred method. There are several reasons for this.

When buying the physical gold, they get to hold it, rub it, put it under their pillow and sleep with it, or put it on the dashboard and marvel at the sparkle. There’s just something about having a lump of gold that you can see and touch. Plus, they don’t like the other methods of investing in gold because either 1) they can’t see it so they don’t trust it, or 2) they’re investing in a proxy rather than the gold itself.

Then there are those who want to buy physical gold because they want a working currency to use after an apocalyptic event (think Mad Max movies). They reason that paper money will be worthless, so they want gold and silver as a trade medium. Related to this is another reason that physical gold is valued: no one knows you have it. You can bury it in the back yard and no one’s the wiser. There are no monthly statements to give away the value of your wealth.

Unfortunately, if you own physical gold, you must store it somewhere. And someone could steal it if they become aware of that somewhere.

Another popular way to invest in gold doesn’t involve actually investing in gold, and it eliminates some of the problems of owning physical gold. These people buy gold mining stocks, either directly or through a mutual fund. The idea is that since gold mining companies own gold mines, when gold goes up in value, the value of the mines (and thus the value of the company) will go up as well. In addition, if the value of gold falls flat, these companies will still dig up and sell gold, so they will make a profit.

The last method of buying gold is the newest: gold ETFs. An ETF, or more formally, an Exchange Traded Fund, is a type of mutual fund that trades on a stock exchange. There are two of them, ticker symbol GLD from State Street, IAU from iShares. We’ll talk more about them next week.

Back to the present: IAU and GLD are still around and have been joined by over a dozen other gold ETFs. Everything else still applies. See you next week.