Editor's note - You can trust the integrity of our balanced, independent financial advice. We may, however, receive compensation from the issuers of some products mentioned in this article. Opinions are the author's alone, and this content has not been provided by, reviewed, approved or endorsed by any advertiser.
There can be no mistaking that gold is once again in vogue.  There are so many commercials on late night television with celebrity endorsements trying to convince you to buy gold coins or telling you that you can make a fortune by selling your scrap gold.  But the only people who are actually making money from stuff on late night TV are the guys selling it?  I should know…I am the proud owner of a Magic Bullet and a Salad Shooter which are still sitting under my kitchen sink.  And, like the stuff hawked on infomercials, gold sold on late night television is not a good investment for you.

Hedge Against Inflation. Gold does not provide investors the return on investment its proponents, the gold bugs who have been bitten by the gold craze, would like you to believe.  According to the Motley Fool, “Across ten asset classes, over a near-40-year time horizon, and in increments of three, five, and 10 years, there is one investment vehicle that’s been a total loser…gold!”  What is the most horrible inflation that we have seen in America?  It was the gas crisis of the 1970’s.  How many gas stations do you remember taking gold coins or bullion as a form of payment back then?  That’s right…none, zero, zip!  I even asked my mother to make sure. If gold is such a great investment to ward off inflation, a $1,000 price of gold in 1980 should have appreciated to $2,350 per ounce in 2009 just to have kept up with inflation. But, it hasn’t done that, and that is why gold is a bad investment and hedge against inflation.

Gold is not the fall back medium of payment in the times of crisis that those guys that sell it on late night TV want you to believe.  What about emerging market countries such as Argentina and Mexico that had extremely high inflation in the past?  Do they abandon their pesos for gold when catastrophe strikes?  No.  What would we do if there was an Armageddon?  We would barter, maybe with gold, probably not though.  We would most likely barter with our labor like the father of economics Adam Smith suggested.

52-Week High: I hate buying stocks and other investments at their 52-week high values.  It goes against our fundamental rule as investors of buying low and selling high.  One recent report said, “Gold bugs have been dreaming of global financial disaster driving the gold price to $3,000 [per ounce]. But they have just had ‘their perfect storm’[in our recent recession], and it didn’t happen.”

A return-chasing type of investment is what is driving this modern-day gold rush, and that chasing is exactly why you should be looking elsewhere for your investment returns.  Anyone who is chasing returns will most likely come late to the party.  Gold has already been above the $1,000 per ounce level twice before, only to fall back to lower levels each time.  In the late 1970’s, the price of gold was much higher than its $1,000 price tag in real terms (today’s dollars).  In 1980, the price of gold rose to $850 per ounce.  After that peak it fell very far below that level and stayed well below that for decades, bottoming at a low of about $250.

Hard To Liquidate: In times of uncertainty, people want to buy physical gold, bars and coins, and then keep them either at home or in a safety deposit box.  Buying gold coins on TV is just like buying the Magic Bullet or some other late night fare.  It is just a waste of your money.

Despite the recent run up in the stock market, the American economy is still in the doldrums.  We are still losing jobs by the hundreds of thousands every month, and our homes are still slowly sinking in value with no new significant levels of home buyers on the horizon.  People are scared and want to latch onto anything that has a feel of safety and security, and that is the main reasoning behind the overwhelming favoritism for gold right now.  But, over-weighting your investment portfolio in gold or any other precious metal for that matter is not the answer.

If you want to invest about 10% of your nest egg in commodities and precious metals such as gold, there are better alternatives out there than just buying gold off of late night television.  Buying shares in a gold mutual fund such as an exchange traded fund (ETF) which tracks the price of gold, gold processors, and miners and can be bought and sold relatively easily in the open market. And even buying gold in conjunction with a self-directed IRA is a much better option than buying physical gold.  Or, you can invest in gold stocks directly in firms such as gold miners and processors.

Bottom line: investing in gold because it is popular right now is the wrong thing to do for your financial future.  Investors often lose sight of gold’s poor longer-term historical results, especially during short time horizons with extreme volatility and market uncertainty.  Gold and precious metals should only be used for a small portion of your overall retirement and investment portfolio instead of the main component.  And, it should never be bought off of late night television.

Article comments

Neil says:

I couldn’t agree more. If you are worried about the economic situation then the baseline for a low-risk home for your money should be a bank account paying interest.

People may make money out of gold from time to time but for the most part this will be doen to luck.

Hank says:


Thank you very much for loaning me your readers today and for giving me the chance to guest post. I really appreciate it. I can’t wait to see what your readers think about buying gold.

Peter Von detrich says:

In your article you mentioned on a inflation adjusted basis gold should be over 2000$ an ounce. That indicates a good buy to me. You also keep refering to returns over x period of time. Those who put to much faith in paper assests always cherry pick dates. Obviously if you bought the nasdaq in 1999 and held till today on a nominal basis and particularly a inflation adjusted basis you would have been demolished financially. The us federal reserve is making terrible mistakes, mistakes that will lead to a inflationary storm which has never been witnessed before in this country. The fed will I emphasize will create another bubble but this time in commodities new money will chase returns in commodities. The wise will buy wheat, gold, silver, coffee, sugar. The dumb will buy paper and in the end will use it to start fires or paper their walls.

DR says:

Peter, I’d be happy for you to pick in twenty year period in the last 100 years to compare gold to stocks. That said, I do think the Fed and U.S. Government are making terrible mistakes that will hurt us for generations to come. But that’s why I’ve diversified into foreign stocks and bonds as well.

bob says:

I think that you need a mix of the two, invest in some gold and do your homework first. also get a really good savings account, reading the small print!