Topic Revisited: Investing In Gold

Posted By Paul

My next revisiting of an earlier post is an article I wrote on August 24, 2007 entitled:

Investing in gold

So now that it is over a year since that first post, have my feelings on gold changed?

In some ways they have quite a bit. I still feel like gold should be viewed as an investment with its own risks, and that these risks really aren't all that different from investing in individual securities.

It seems like recently there has been a lot of talk of using a gold as a way to avoid the craziness of the stock market.

I would have to agree with this article:

Buying gold as a safe haven

Which essentially says that buying gold as a way to avoid crazy fluctuations in your investment doesn't make much sense.

Also, after buying a few ounces of gold I seem to have noticed that at least for me the gold I have purchased has become less and less of an investment.

For example, when my son was born I decided to go out and buy a gold coin minted in the year of his birth. My hope is to some day give it to him as an heirloom gift.

This essentially means that I never plan on selling the coin, and more importantly I hope that my son values the history of it and doesn't view it as a savings bond that should be cashed in when he needs a few extra bucks.

So by not planning on ever selling this coin, it has ceased to become a financial investment. I suppose that if things ever got so dire that I needed the money I could sell the coin, but I really don't plan to do that.

Here is another example: The first gold coin that I bought (which I purchased after writing the first gold post) has no historical or sentimental value to me. So I could consider that an investment in that I could sell it at a moment's notice without any feeling of loss. However as time goes by the coins interest to me as an investment and its interest to me as a collectible gets blurry.

This to me is one danger of investing in gold coins or other precious metals. They are pretty, and kinda cool looking, so it's not hard to start thinking of them as collectibles, not investments.

After reading the final paragraph of my first post on gold:

"Overall, my advice is that if you are interested in gold and have a little extra cash and want to buy a coin or two, go for it. I'd suggest that you view gold (or any other precious metal) as more of a hobby than an investment. If you want to take all of your savings and put it into gold, think twice, and then if it still seems like a good idea think a third time. "


I think that advice has held up well. I have purchased some coins (mostly silver and a little gold) and consider it more of a hobby than an investment. I would definitely not recommend sinking your life savings into a chest of coins as a way to avoid a crazy market (you'll just end up agonizing over the price of gold instead of agonizing over the stock market).

If you ever do want to put some money into gold purely as an investment I would suggest purchasing shares in a gold fund (see my earlier post for info on that). You don't have to store the gold anywhere, you don't have to worry about your investment turning into collectibles that you end up keeping forever and when you want to sell them you don't have to find a coin store.

I might try buying a few shares in a gold fund at some point, but I would definitely say that my days of purchasing gold coins "as a pure investment" are over.