The Case Against Buying Gold for Retirement

I have been reading and writing a lot about gold investing in recent weeks. The spot price of gold has hit highs in 2010. A well known gold ETF – GLD – peaked on My 12 but has since fallen off some. Even still, it has returned 8% year to date.  The gold bugs are convinced it will go much higher as the world prepares for disaster, including elimination of the dollar as the de facto reserve currency. Other experts aren’t so sure.

In fact, here is an article in which some analysts expect gold to fall to $800 within a year. The reasoning behind these predictions is that the non-investor (non-speculator to be more precise) demand for gold is dropping. This is important because more than half of the demand for gold as a metal comes from sources other than the investing market.

For example, according to the article, more than half of the world demand for gold comes from jewelry manufacturing. Demand from this segment fell in late 2009 and may continue to fall because of high prices. This will drop the value of gold for everyone.

Also, the “we buy gold” businesses have become so successful that the supply of scrap gold is increasing. That can’t be good for future gold prices either.

Another factor that bothers me in particular is the alliance among gold retailers and conservative fear mongers that seeks to drive scared consumers to buy more gold. As just one prominent example, Glenn Beck frequently mentions gold on his show. One reason is that Goldline is a big sponsor. Read this article about that “unholy alliance” and then question whether you should pay any attention to the ads you see from Goldline and others like it.

I find Beck somewhat entertaining for amusement purposes but I would never listen to his advice about investing. I understand Beck recently criticized TIPS investors for “artificially” depressing the prices of gold and other commodities. As for Goldline, really study the prices they charge consumers for coins and the like. If you expect someday to take those coins down to the grocery or gas station, think again.

For boomers and retirees, there’s nothing wrong with having a small amount of your nest egg in gold, as long as you are well allocated in other asset classes that have value other than as a hedge against fear and disaster. That’s what gold is. But don’t be surprised if gold bought this year takes a nosedive downward next year. Volatility of that nature is not good for a pre-retiree. We’ve learned that from the stock market, haven’t we?

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My Related Posts:

1. The Gold Investing Dilemma
2. Should You Now Own Gold for Retirement?
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4. Online Investing and Money Advice
5. Investments to Retire on Time