Investing in Gold: Irrational Exuberance!
Gold sellers scream: Buy! Buy! Buy!-But WHY?
Posted October 11, 2010
Yes, there is something substantial and tangible about precious metals. If you were to look at a chart of gold prices from 1985 to today (London PM Fix), gold has traded within a very tight trading range until it took off as we went into recession. Is this a surprise? No. In fact, investors fly from stocks when markets dip...yes, that's the SELL part. Since the market abhors a vacuum and interest rates are near zero, what could be more fun than to put your hard earned coin into, uh, coin. But what spurs investors to take the leap from one market to another?
The answer is a two-parter: one - Fear; and two, those who wish to SELL gold. The media does it's very best to stir the pot to rile up investors that their life savings will be worthless and that selling is a very good move; meanwhile, where does this "news" come from about the ultimate result of staying put in their portfolio? Ummmm....Wall Street? Commodities brokers? OK, remind me again, how do these folks get paid? Commissions from buying and selling you say? Ah, yes, commissions. So, would it be fair to say that someone has great motivation to scare the wits out of people?
Everyone wants to be perceived as "smart" and "in the know." So when the pundits and salesmen shove charts in your face displaying the incredible rise in the price of gold, you might feel the tug to climb aboard the Midas Express. But before you do, take a moment to think about it and ask yourself a few choice questions.
1. Why is this a good investment?
2. What is my expectation of profit and over what time frame?
3. How will I know when to sell?
4. Is my decision- making based in emotion, fear or knowledge?
Once you've deliberated and you still believe this is the right move, take one more moment to consider your past successes and, yes, failures in making investment decisions. Lay it out on the table and be honest with yourself. We're not talking about miscounting golf shots here. For those who are contemplating this purchase out of fear of the collapse of our economic system, perhaps you might consider buying bags of grain rather than bars of gold. History is a great teacher; market cycles are just that, cyclical. Interest rates will not be near zero forever, housing prices will not be depressed forever and like a tree, gold will not rise to the sky.