As I travel around the country on book tour for Living Large in Lean Times, I’ve been asked questions about gold at every single event. Gold made big moves today and earlier this week to new record highs, so I feel I’ve got to reiterate my long-time message about the glittery stuff.
Gold can be very speculative and you should tread carefully when buying it. That’s been my message for years. In fact, if you look at the numbers inflation adjusted, gold still is not back to where it was 30 years ago.
I have a high-school friend who was into buying gold back in the late 1970s. He believed the dollar was done and he wanted to put his money in gold as safe harbor. Up to 1981 or so, he looked like a genius. But since then, gold has meandered and declined in value for a long, long time. Only now is it just getting closer to a value equivalent to 30 years ago.
With that having been said, I can’t tell you that gold won’t double in value from here. The more people talk about gold, the more affirmation and momentum it gets…until it doesn’t anymore. That’s the problem: Gold is worth only what somebody says at that time.
So the ultra-excitement about gold that I’m seeing makes me afraid for you to jump in. As I said, it is possible that it could go sky-high from here. But with the big run-up in value already, the greater likelihood is that it will go down in value. (In order for gold to be a smart play, we would have to continue to mess things up economically as a country.)
One concern for me is there is more money now in the SPDR Gold ETF than there is in the SPDR S&P 500 ETF, according to USA TODAY. That is shocking. To me, that says tread carefully.
If you do want to buy gold, buy it in dribs and drabs and make it no more than 5% or 10% of your overall portfolio; don’t take everything you’ve got and pour it into gold or other precious metals.
If you already have gold and you’ve had a nice run-up, take some chips off the table instead of putting more on. Remember that emotion can separate you from your money pretty quickly.