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Betting on Gold: Is This the Right Time?

NEW YORK (MainStreet) — Your bank savings are paying next to nothing, so maybe it’s time to look at an age-old alternative: gold.

Gold has historically been the refuge in times of crisis, and the rippling effects of the earthquake and tsunami in Japan certainly count as a crisis that may damage the world economy and financial markets in ways we can’t foresee.

While gold has not always proven to be a good long-term holding, many investors like the fact that gold marches to a different drummer. When stocks and bonds are suffering, gold may flourish, and vice versa. Thus it can stabilize a portfolio, much like cash.

But as an alternative to a plain old bank account, gold has some drawbacks. For one thing, it earns no interest. That may not seem like a big deal today, because interest rates are so low, but rates could rise in the next year or two. If you bought gold now and its price dipped, you might have to sell at a loss to move to savings and checking when bank accounts became more generous.

Of course, you also might have storage costs with gold, though it wouldn’t take a big safe deposit box to hold a few pounds worth tens of thousands of dollars.

Gold has had a terrific run, rising from a mere $300 an ounce a decade ago to more than $1,400 today and beating stocks by an extraordinary margin. But gold peaked at about $850 an ounce in 1980, pulled back for years and didn’t return to that high until 2007. On an inflation-adjusted basis, gold would have to rise to $2,200 to match the 1980 high. So during this 30-year period, stocks have done far better.

Read More:   savings, stocks
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