Can someone summarize for me the relative risks/benefits of investing in gold?

[99th_Monkey]

I'm not an investor, in fact I am a total idiot about such things .. but I have three very close family
members who have sizable six figure portfolios invested in CD's, money markets and so-called
socially responsible investments. They all see rather oblivious to the apparent "tsunami" that
Eliot Spitzer is predicting, and are so are not investing accordingly.

I have a close friend who invested heavily in gold about a year ago and is sitting pretty. I've
seen the GATA post here on DU about the ad in WSJ the other day, in fact Kathrine A. Fitz is my
friend's financial advisor.
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x33762

Can someone explain in simple terms understandable to an investment dummy the risks and benefits of
investing in gold at this point in time, so I can share that information with my family members?

I'd much appreciate any sound advice you can share.

[skooooo]

1. I just know that over time....

...it hasn't done well at all compared to the stock market. I've heard that's pretty much a general rule.

[99th_Monkey]

2. I know that's the conventional wisdom, and what my ex-wife has been told

by her investment counselor .. yet we don't live in conventional times .. I see so many dire
predictions, the dollar free-falling, etc.

anyway thanks for sharing.

[tabatha]

3. You probably should have bought about two years ago.

[Warpy]

10. Gold is a hedge against inflation. An ounce of gold now will buy

about the same thing it could at the turn of the last century in terms of goods and services although it represents many more dollars. It also tends to deflate in times of economic deflation, doesn't hold its value. It also doesn't earn anything over time, produce dividends or interest.

Gold certificates and mining certificates are oversold and therefore very risky. Gold itself might be comforting, but as my burglary last month proved, thieves are drawn to it. I swear they can smell it although the guy didn't get a couple of pieces of the good stuff my mother left. Sloppy housekeeping paid off.

Forget about the safety deposit box. Thanks to the Chimp, DHS now has permission to rob all the gold out of it in any unspecified national emergency. Unless you're putting a water feature into your back yard and are willing to bury the gold underneath it, it will attract thieves. If you do hide it that way, it will be hard to get to when you need it yourself.

In addition, there are zillions of Depression stories about people handing over solid gold cigarette cases to diners in exchange for a couple of meals to keep them going. In a true economic meltdown, you can't count on having anybody willing and able to buy your gold for what its worth.

Personally, I'm using the insurance money to buy a few things that are my taste, but I'm skipping the shiny rocks as any sort of investment for all the reasons I've listed above.

[Art_from_Ark]

12. "Zillions of Depression stories about people handing over solid gold cigarette

cases to diners in exchange for a couple of meals to keep them going?" Are you kidding? In all my 40 years as a coin collector, I have never heard a single story like that. Solid (sterling) silver cigarette cases, I could believe. Gold plated cases, OK. Grandpa's old gold watch case, maybe. But solid gold cigarette cases were a luxury that the vast majority of people just didn't have. And those gold-looking cases would have been hard to dispose of, if they didn't have the gold fineness (10K, 14K, 18K) clearly stamped on them

As for the buying power of gold compared to the turn of the last century, it's much higher today than what it was in, say, 1900. According to the inflation calculator, if one ounce (31.1 grams) of gold, which was valued at $20.67 in 1900, had just kept abreast with inflation, it would be worth approximately $508.76 in today's money, rather than the current $970.

[Art_from_Ark]

11. Depends on your time frame, what stocks you buy

For example, if you bought into "the stock market" 7 years ago, you probably wouldn't have much to show for it-- but gold has more than tripled during the same time.

Stocks-- paper (virtual) assets
Gold-- tangible asset

[wain]

4. buying high?

aren't you supposed to sell high and buy low?

[99th_Monkey]

5. High is a relative term

if the GATA claims are valid, then as the repressed price of gold is revealed and gradually
lifted, it would likely go through the roof, no?
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x33762

[whosinpower]

6. In times of economic uncertainty

Especially regarding dollar valuations - if a person feels that the market will take a nosedive and the dollar fall - then the safe bet is to put your money into gold - instead of stocks or bonds.

Funny - I said that I should of invested in gold when Bush gained office. What was it then - $400/ounce? And now?

Gold is considered the safest of havens - above all else. so...when gold falls - the market sentiment is pretty rosy - but if the market is in a state of uncertainty or upheaval - gold is considered the safest. Don't know why - other than gold is not money - gold is gold.

It isn't so much a matter of making money on gold - rather than SAVING what you have.

[FogerRox]

7. Its time to buy currency, I dont mean US dollars.

[pscot]

8. If the price of gold is measured in constant barrels of oil

the sky's the limit.

[Captain Angry]

9. What is your goal?

I bought gold because I saw international demand increasing and the dollar weakening. That move has gotten me a 40% return over the last year or so.

Some stocks have been crushed in that timeframe. Others are up 200% since I bought last year.

Keep in mind there are several ways to invest in gold. One way that is nice is the GLD ETF. It is an ETF that is comprised of ounces of gold. This way you can actually invest in this with your brokerage account. You don't have to take physical possession of the gold.

SLV is the ETF for silver, if you're interested.

If you buy gold and hold it yourself, you need to find secure storage. That might cost money, which would eat into any potential profits generated by selling at a higher price later. Furthermore, you have to find somebody willing to buy it back later. Depending on where you live, that can be difficult unless you deal with somebody online.

If you buy gold and have a company store it for you and things go awry, you might not be able to get it.

If there is a shock in India or maybe Europe, gold demand (and therefore the price) may fall dramatically. India is the #1 buyer of gold according to something I just read the other day. As an extreme example of what could happen, if Pakistan and India were to go to war, gold, oil, and several other commodities would likely fall in price as the expected demand falls.

The high price is pushing users into alternatives. The high price of some metals are pushing some people into thievery. Platinum and rhodium are worth thousands of dollars per ounce and are in some catalytic converters. There are stories popping up of people going to the mall parking lot with a hacksaw and walking out with $10K in 30 minutes.

Just some thoughts for you.

But I'd discuss them with a financial adviser instead of listening to anonymous folks online.

[bhikkhu]

13. Gold holdings offset the value losses of dollar holdings due to inflation.

In the simplest scenario, at least.

The more complex part is that "dollar holdings" can include any stock valued in dollars, and these holdings may produce dividends when the corporations are profitable. Gold inherently produces no income, but is a commodity providing value only when bought and sold.

So...all risk/benefit depends upon timing. Do you have CD's gaining interest value at a rate less than inflation? If so, you might be better to hold gold. Do you hold stock or mutual funds in a recessionary period, where both dividends and value are likely to be disappointing? Gold is then a good option.

On the other hand, gold produces nothing. Where assets are constrained by needs other than pure and intelligent timing of the the market, losses or unsatisfactory results are likely. But where assets are so free as to allow such timing, do you really need to worry about incremental value changes and profit and loss?

Avoiding risk is not so difficult by other means, and go live life. I work every day myself. I haven't the luxury of such spare assets, but I enjoy what I have more than many who do.