Chris Farrell from Marketplace Money, a column written for American Public Media, wrote an article that promoted misleading information about buying gold. The article in its entirety follows and you’ll find my response pointing out Farrell’s unsound advice about buying gold below that.
People need to know the truth when it comes to buying gold and I will continue to challenge financial advisors and the media journalists who continue to misinform the public about gold.
Chris Farrell “Marketplace Money personal finance guru”
Buying gold (click to read article and my response on the Marketplace Money site – as long as they don’t take it down)
Question: What is the best way to add some gold to your investment portfolio? It is best to buy shares in a mutual fund, or just buy gold? Andrew, New York, NY
Answer (from Chris Farrell): Gold has been on a tear lately. The price of the precious metal meandered for much of the summer, and then it moved sharply up in September. Gold futures closed at a record high today of $1,004.90 a troy ounce. (That’s a “nominal” price record; adjusted for inflation gold reached a peak of more than $2,200 in early 1980.) There are all kinds of theories being batted around the world’s largest chat room–the global capital markets–for the run up in gold. The most popular explanations revolve around the prospect of surging inflation in the U.S., worries about global deflation, buying by the Chinese central bank, falling mining production, a weak dollar–and all of the above.
If you’re optimistic about gold, I would be wary about buying the actual metal. The metal is volatile. Gold doesn’t pay dividends. It doesn’t create cash flow. It costs you to store it.
There are intriguing alternatives. There are some exchange traded funds (ETFs) that are a cost-effective option for the individual investor, such as the SPDR Gold Shares ETF. A number of mutual funds focus on owning the precious metal and mining company shares, like the Van Eck International Investors Gold. Another approach is shown by the mutual fund First Eagle Global. A small percentage of its portfolio is invested in gold bullion. It acts like an insurance policy. When the equity markets go down, the price of gold is supposed to go up, cushioning the impact on the portfolio’s value.
By the way, if your nervous about inflation here in the U.S. I still prefer Treasury bills and Treasury Inflation Protected Securities. These are investments that preserve capital and make you some money. No one will get rich with these securities, but the value of a dollar will be preserved. Still, if you want to invest a small percentage of your portfolio in gold, I’d investigate the mutual fund and ETF options at a website like Morningstar.com.
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MY RESPONSE TO CHRIS FARRELL
Doug Digger Eberhardt | Respond
September 12, 2009 5:47 AM PT
The author of this piece has made some misleading statements.
He said; “If you’re optimistic about gold, I would be wary about buying the actual metal. The metal is volatile. It costs you to store it.”
Year over year since 2000, the price of gold has been rising. How is that “volatile?” If you store it in your own safe, how does that cost you?
He said; “Another approach is shown by the mutual fund First Eagle Global. A small percentage of its portfolio is invested in gold bullion. It acts like an insurance policy. When the equity markets go down, the price of gold is supposed to go up, cushioning the impact on the portfolio’s value.”
Equities were more volatile than the physical metal. Last year when the overall stock market crashed, gold mining stocks got hit hard as well. Physical gold, while getting hit midyear, recovered and finished the year positive. As a matter of fact, First Eagle’s Global Fund is down 14.4% while their Gold Fund is down only 8.3%. Physical Gold more volatile?
I wrote a free white paper on investing in gold. It can be found at http://fedupbook.com/whitepaper
Disclosure: I don’t sell gold. I just write about it.
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About Doug EberhardtDoug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534
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