gunDriller
15th May 2010, 05:19 PM
Link to Article (http://finance.yahoo.com/banking-budgeting/article/109557/the-gold-frenzy-why-investors-should-resist;_ylt=AiG.myi3Htp4K2eNTwRQVKRO7sMF;_ylu=X3oD MTE5ZWthaHE3BHBvcwM1BHNlYwN3ZWVrZW5kRWRpdGlvbgRzbG sDd2h5aW52ZXN0b3Jz)
"The Gold Frenzy: Why Investors Should Resist"
by Ben Steverman
Friday, May 14, 2010
"The price of gold hit record highs over the week of May 10-14, attracting the attention of many retail investors. But this precious metal is no safe haven.
As an investment, gold has never been more popular. And, for individual investors, that's part of the problem.
Encouraged by TV and radio ads touting the virtues of gold, retail investors are buying it up. One leading gold dealer, Goldline International, estimates it has added 50,000 clients in the past three years. The gold frenzy is worldwide: On May 13, a vending machine that dispenses gold bars was unveiled at Abu Dhabi's Emirates Palace hotel.
Financial experts warn that all this enthusiasm for gold could be a warning sign -- that gold prices could be near their peak. "It's very in vogue right now, which is usually a telltale sign [of] a bubble-like mentality," says James Miller, president of Woodward Financial Advisors in Chapel Hill, N.C.
Gold's advocates may be right that the metal could head higher still, driven by the fiscal crisis in Europe, high deficits in the U.S., and fears of inflation. "All we can do is put our money into real assets, because paper money everywhere is being debased," Jim Rogers, chairman of Rogers Holdings, told Bloomberg Television on May 12 as gold hit new highs.
Treacherous Field
But even if gold keeps rising -- a prospect very difficult to predict, given the metal's volatile track record -- there are several features of gold that make it treacherous for individual investors, financial advisers say.
Gold might have a reputation as a "safe haven," but nothing could be further from the truth, says Susan C. Elser, of Elser Financial Planning in Indianapolis. Unlike other commodities, gold has few industrial uses.
>>> No, it's just used in every cell-phone, every computer, and most other electronic devices in the form of gold plating.
"Unlike businesses owned through the stock market, gold earns no profits and doesn't pay out dividends. Unlike bonds, no one pays interest to holders of gold. And, unlike insured bank deposits, there is no guarantee of your principal investment."
>>> who wants a guarantee from the financial industry, anyway ?
""There is no downside protection on investing in gold," Elser says.
Gold used to be the backing for currencies, but no longer. Now "it really is only a store of value because people say it's a store of value," says Ken Eaton, principal at Stepp & Rothwell, a financial planning firm in Overland Park, Kan. That can lead to extreme volatility, which financial planners cite as one of gold's biggest downsides."
>>> the US $ is only a store of value because people say it's a store of value
but, people are actually saying that gold is a store of value. maybe we should ask the nervous Europeans why they're not rushing to buy US $.
"Gold may be up 84 percent in three years, but it has taken a wild path to get there."
>>> the market is highly volatile. prices are suppressed by banks working for the government. this creates buying opportunities.
Steverman is a reporter for Bloomberg Businessweek's Finance channel.
EDIT: Changed long link to named link to prevent horizontal scrolling. -Gaillo
"The Gold Frenzy: Why Investors Should Resist"
by Ben Steverman
Friday, May 14, 2010
"The price of gold hit record highs over the week of May 10-14, attracting the attention of many retail investors. But this precious metal is no safe haven.
As an investment, gold has never been more popular. And, for individual investors, that's part of the problem.
Encouraged by TV and radio ads touting the virtues of gold, retail investors are buying it up. One leading gold dealer, Goldline International, estimates it has added 50,000 clients in the past three years. The gold frenzy is worldwide: On May 13, a vending machine that dispenses gold bars was unveiled at Abu Dhabi's Emirates Palace hotel.
Financial experts warn that all this enthusiasm for gold could be a warning sign -- that gold prices could be near their peak. "It's very in vogue right now, which is usually a telltale sign [of] a bubble-like mentality," says James Miller, president of Woodward Financial Advisors in Chapel Hill, N.C.
Gold's advocates may be right that the metal could head higher still, driven by the fiscal crisis in Europe, high deficits in the U.S., and fears of inflation. "All we can do is put our money into real assets, because paper money everywhere is being debased," Jim Rogers, chairman of Rogers Holdings, told Bloomberg Television on May 12 as gold hit new highs.
Treacherous Field
But even if gold keeps rising -- a prospect very difficult to predict, given the metal's volatile track record -- there are several features of gold that make it treacherous for individual investors, financial advisers say.
Gold might have a reputation as a "safe haven," but nothing could be further from the truth, says Susan C. Elser, of Elser Financial Planning in Indianapolis. Unlike other commodities, gold has few industrial uses.
>>> No, it's just used in every cell-phone, every computer, and most other electronic devices in the form of gold plating.
"Unlike businesses owned through the stock market, gold earns no profits and doesn't pay out dividends. Unlike bonds, no one pays interest to holders of gold. And, unlike insured bank deposits, there is no guarantee of your principal investment."
>>> who wants a guarantee from the financial industry, anyway ?
""There is no downside protection on investing in gold," Elser says.
Gold used to be the backing for currencies, but no longer. Now "it really is only a store of value because people say it's a store of value," says Ken Eaton, principal at Stepp & Rothwell, a financial planning firm in Overland Park, Kan. That can lead to extreme volatility, which financial planners cite as one of gold's biggest downsides."
>>> the US $ is only a store of value because people say it's a store of value
but, people are actually saying that gold is a store of value. maybe we should ask the nervous Europeans why they're not rushing to buy US $.
"Gold may be up 84 percent in three years, but it has taken a wild path to get there."
>>> the market is highly volatile. prices are suppressed by banks working for the government. this creates buying opportunities.
Steverman is a reporter for Bloomberg Businessweek's Finance channel.
EDIT: Changed long link to named link to prevent horizontal scrolling. -Gaillo