For Gold, Peace, and Freedom


Why Gold Is Still a Good Investment

March 17th, 2009

gold-and-cash.jpgWith gold prices hovering near $900 per ounce, I have often wondered if it is worth the risk of investing in precious metals even after the recent price increases. This article by Wil Langford seems to suggest that it is still a good deal, apparently because the volatility we have seen in the stock market and commodity prices makes it seem relatively stable and secure.

I tend to agree with the idea of having at least a small cache of gold or other valuable commodities somewhere as a long-term hedge against inflation. Governments have a long history of debasing their currencies to pay for all sorts of unnecessary spending, and recent events suggest that this pattern shows no signs of turning around anytime soon. Investing in gold with idea of making a quick profit seems much more questionable, however; as someone who is accustomed to seeing gold in the $300-$400 per ounce range, I would not be surprised if we don’t see a few significant price corrections before overall inflation or market crashes push it over the $1000 mark.

When the financial crisis started, precious metal appeared to be a good investment and many people began to buy gold. As the world markets are more and more troubled by grim news and confusing advice from investment counselors, many people are wondering if gold is still a good investment.

Here is why gold remains a good investment. Though the bailout is going forward and steps are being taken to shore up markets, there is still great turmoil and no one is certain, at this point, just which way the financial winds will turn. Each item of positive news is followed by some bad news and market rallies are quickly followed by sharp declines. The result or effect of the bailout is still unclear, it may be a fix or a flop.

The best way to figure out where this is all going is to look to the past. If you are one of the few people who is wise enough to learn from the past, then you can even profit, or at least survive, during hard times.

One of the great financial geniuses of our times, Kenneth Galbraith, warned that market crashes are inevitable and investors have a short memory. Every thirty years or so, a new crop of suckers are born (those are Galbraith’s own words).

There is great truth in his statement. A new group enters the workforce and buys into the markets. They are sold on the idea that it is a money machine and will automatically increase their money so they can all retire as millionaires. Sometimes it happens, but most of the time it doesn’t.

Two main components of the turmoil that are driving it are greed and fear. The wide shifts in the price of oil are one indication of a super volatile market. It hit a high of $147 not long ago and is now down below $50 a barrel. When the world’s largest export commodity is subject to such great movement, the markets are too nervous to read by conventional methods.

What lessons can we learn from the last great financial crisis? Before it started, some top economists predicted the Great Depression. There were several panics that were stopped by government intervention. Does this sound familiar? Those early panics were like the early tremors of a big earthquake, but some people still foolishly left their money in the market!

There are several men who are considered financial geniuses and the greatest investors of our times. The public watches these men to see how they will deal with the financial uncertainty and feels reassured by their confidence. But once again, let us take a lesson from history and two other such men who were also considered financial geniuses before the Great Depression destroyed them. The great banker Mitchell and Durante, the founder of GMC actually convinced investors to leave their capital in the market until it was too late.

In troubled times you must think for yourself and take the cautious route. Don’t be misled by men who have a lot to lose if you and many others withdraw from the markets. Think for yourself. Now is the right time to buy gold, the most stable investment during any troubled times.

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