We keep hearing people talk about gold. I had a question to pose to my friend, financial advisor John Hauserman of RetirementQuest.
I asked, “I keep seeing people advise us to buy gold, but I have a question. What if I end up with all kinds of gold, but there’s nothing to spend it on? What if no one will take my gold? What other ways do you advise us to prepare for future economic downturns?”
John replied, “I am really glad you asked this question. While someone could write an entire book on this subject, which I actually did (due for release this fall), I will try to answer this as briefly as possible. This is such an important topic because my sense is that millions of small investors will someday soon rue the day which they decided to buy gold (or ‘take the bait’ might be a more apt description). Gold appears to me to be following a very familiar pattern which we have seen throughout history and most recently at the turn of this century in the form of the dot com fiasco, and then again in the form of can’t lose real estate. In both instances, the investment fervor was spawned by an economic reality; that being the realization that the information age is here to stay, and further, the grand-slam home-run stocks of the future will very likely be technology based.
“In the case of the latter, there is certainly some element of truth in the underlying fundamentals of real estate, which include the fact that they really can’t make any more of it and that a growing population will result in an ever-increasing indigenous demand. However, once recognized by the masses and hulked by those who had a financial interest in selling these types of investments, the prices for the mentioned asset types became (as we now know) priced way beyond anything that matched up with economic reality. At some point during this cycle, (as always)savvy investors began to pull their money out; even as the evening news professed the glory and wisdom of the “must have” investment and even as an army of sales folks pointed to charts and graphs to justify their pitch. Now here comes the really sad part—by the time the average investor realized what was happening, their hopes and dreams had burst along with the proverbial bubble.
“I see gold following very much the same pattern. There is certainly valid economic reason to support the owning of gold, especially for those who anticipate tough economic times ahead and further may question the stability of the world’s major currencies. In fact, history shows us rather clearly that gold has been a good choice for those who suffered through the collapse of their nation’s monetary system. But that is the obvious, much akin to the referenced reasons for buying dot com and real estate. The pertinent question is; Is that fact already priced into the current level for gold? Indeed, are the current lofty prices for the metal grossly overpriced, or are we headed for such tremendous calamity that we will consider today’s prices a bargain? All you have to do is watch the non-stop talking heads for just a few minutes and you will surely hear the reasons justifying the purchase of gold. However, the din you are unlikely to encounter include the reasons not to buy gold; perhaps this is due to the fact that no sales folks stand to make any money when investors don’t buy their wares.”
Very interesting points, John. I wonder what gold prices will be in the future, and if we will, indeed, see the same things happening with gold that happened with real estate.
John will return tomorrow to answer more of my questions about gold. In the meantime, check out these related blogs:
Wealth Building Strategies by Chris Waltzek