How to Own Gold and Lose a Fortune

Do you hear the same commercials I do on the radio telling you how to own gold and why you must do so right now?

Buy Gold Now!
Buy Gold Now!
Buy Gold Now!

Do you have any idea of how much those sharpies spend on advertising? Hundreds of thousands of dollars each month. Where do you think that money is coming from? You…if you buy physical gold. Now I’ll admit that just because a product is advertised quite a bit doesn’t mean it’s a terrible investment. But in this particular case, it is. Here’s why:

1. Nobody knows what gold is really worth.

Typically price is determined by supply and demand. Not so with gold. The price of gold has skyrocketed even though there is plenty of gold above ground. The actual use of gold is infinitesimal compared to the supply that is available.

According to Wikipedia, annual production (2500 tons) get used up by retailers and industry but there are 158,000 tons available sitting around and readily accessible. That imbalance is enough to squash the price of anything. So what has caused the overheated price run up? Speculation.

What are people speculating about? That’s simple. Inflation. Of course with interest rates so low and government spending completely out of control, it’s very probable that inflation will be a problem at some point. But we don’t have that problem right now so the speculation is far ahead of itself.

Moreover, if you are concerned about inflation there are plenty of other ways to invest that are much smarter than buying physical gold. Rental real estate is one example. It’s a better way to go than physical gold because unlike the shiny yellow metal, real estate actually generates income and its value can also rise if inflation heats up.

2. Physical gold will be no good to you in case of anarchy.

Some people are worried when they look around and see what’s happening in society. To be frank, who can blame them? Some people fear that no country is immune from revolution – including the United States. They fear that if such a thing would come to pass, gold would be the only reliable store of value to get by with.

I can’t prove that this argument is wrong but I can tell you that I’m not buying it and here’s why. I believe that if we had a revolution, there would be two kinds of people who had bargaining power. Those with guns and food and those with guns and no food. That’s it. Everyone else would be standing in line hoping for benevolence. So if you really want to protect yourself against total chaos, grow a garden and then get over to the target range. Bull’s eye.

3. Storage

I don’t like physical gold because you have to store it somewhere and that costs money if you want to keep it safe. Oh…and by the way…..when that revolution hits, how are you going to access your gold if it’s not in your home? And if you keep it in your home now, is it safe? What makes you think so?

4. Commission

When you buy and sell gold coins you are going to pay a 3% to 8% commission – if not more. That’s a pretty expensive ticket to punch if you ask me. If you insist on buying gold, purchase an ETF. The commission is a fraction of that. And while I’m not a huge fan of buying gold in any way shape or form, if you are going to buy gold it makes much more sense to buy it in shares. If you do, you can transfer it easily and you don’t have to worry about storage or theft.

5. Fraud

The gold coin business is unregulated. That means that guy who was doing 25 to life for armed robbery last year could be behind the counter selling you coins today. I actually had a client who forked over $50,000 for physical gold and never received it. Ouch.

In short, physical gold as an investment should be something that gives you a headache just like it does me. I realize of course that the guys who sell gold probably won’t be advertising on Wealth Pilgrim any time soon, but it’s a chance I’m willing to take.

The charlatans that hawk gold on the radio and TV prey on your fears and hope you suspend your logic just long enough to write them a big fat check. Don’t fall for it.