Gold Rush

Gold should be part of every investor’s portfolio, as the guy on the radio keeps reminding us

I agree, but now is not the time to buy, when gold prices are at an all-time high, or by reasonably optimistic estimates, still over 1/2 to 3/4 of the way to the pinnacle. Regardless, it's all speculative: If the gold hawkers can stampede panicked buyers, you may realize some increase in value, but you would then need to sell at the top, because it's a greased rail down when the economy picks up. The precipitous fall of gold prices during the Reagan recovery taught us that.

It's confusing. Smart people disagree: Inflationdata.com reminds us, "Gold is not an inflation hedge, it is a crisis hedge." We're already in the throes of crisis, so it's too late for hedging. Donald Luskin at SmartMoney.com tells us that gold is still a smart buy. The Fed is printing an avalanche of money to stave off deflation, so the specter of resulting inflation will push gold even higher.

For those of you wanting to hoard the precious metal against the untimely event of societal collapse, consider the following.

… OK, so the US economy crashes and pandemonium ensues. How are you going to redeem your shares for the gold they represent? Your broker is face down in a pool of his own blood in some New York Skyscraper. It's bedlam. Phones don't work and even FedEx ain't delivering. Those gold shares are now worthless.

So let’s say you actually bought gold coin or bullion. How are you going to get it out of your safety deposit box, assuming for the moment it hasn't already been blown open by the Thunderdome gangs? You better have it buried or hidden away somewhere accessible. Hope you don't have to drive too far, Conoco probably suspends it's open 24 hour policy in the event of anarchy.

To continue the discussion, let's say you buried the gold, pirate style, in a chest or box in the back yard and are able to dig it up without anyone seeing you. How are you going to spend it? Where are you going to spend it? The neighborhood Safeway? No. It's been looted and is now a homeless hotel.

You will be carrying out ad-hoc transactions with scared people, predatory people… You should have invested in lead...

One scenario where buying gold makes sense

The dollar collapses or experiences a drastic devaluation, or the federal government freezes all personal funds held in public institutions and seizes some percentage before freeing funds again (Ecuador did that about 10 years ago). In that environment, assuming society holds together and the economy can make a comeback, buying gold now makes sense. Having your wealth in a personally-held stash of gold would be far superior to any stock, bond, paper dollar, or dollar denominated investment. You would come out the other side with your wealth intact.

But, what if the federal government made all post-collapse gold transactions illegal, forcing you to buy and sell through the government, at their prices?

Isn't it scary that we've reached the point where sane people can even contemplate such scenarios?

http://www.fool.com/investing/small-cap/2008/03/03/you-are-about-to-make-a-bad-investment.aspx
http://www.fool.com/investing/general/2008/12/31/gold-will-be-fine-in-2009.aspx
http://www.inflationdata.com/inflation/Inflation_Rate/Gold_Inflation.asp
http://www.smartmoney.com/Investing/Economy/Nothing-Shines-Like-Gold/