One Sales Pitch After Another. If you watch financial stations on TV now days, You are sure to be bombarded with countless pitches to get you to buy gold. You might see Glen Beck or Gordon Liddy, each telling you that the best move they have made in recent years is adding gold to their portfolio. "Gold is easy to buy, easy to sell, and has never been worth zero." Look online and they will amplify these pitches with additional detail. While they may tell you the spot price of gold, they will never quote the price for which you can buy an ounce of gold on your own. To be fair, some web sites will tell you that they make their money via a spread between the bid price and the ask price (The price at which you can buy and the price at which you can sell). There are some who tell you that the spread is between 5 and 30%. In order to find where it is between those levels you have to call and talk to their account representatives (read salesmen). Suppose gold is $1,200 an ounce and you want to buy 20 ounces. At a 15% spread, it will cost you approximately $25,800. If you decide you need the money two weeks later, it you can sell it for $22,200, which means you need an increase to about $27,900 in order to cover the spread and get your money back. This means the $24,000 worth of gold you bought would have to be worth $27,900 for you to get your $25,800 back. Thus you are buying gold at $1290 per ounce that you can only sell for $1,110 per ounce.
In all fairness to Glen Beck, he tells you that you shouldn't buy gold for a return on investment, instead it is in insurance policy that will preserve your capital in the event of a catastrophic event in which the dollar looses much, of its value. Such an event seems more likely in view of the recent financial melt down which caused the Fed to flood the market with dollars. What you need to keep in mind is that several scenarios are possible and don't put all your eggs in one basket. Just be aware that you can't flood the airways with expensive commercials unless there is a huge profit potential in the sale of the commodity you are pushing.
Black Gold Seems a Safer Bet. Gold doesn't have a lot of uses. On the other hand, we have to have oil and, despite the fact that there are alternative sources of energy, we are unlikely to find a sufficient supply of these alternative sources to keep us in transportation and heat. As a replacement for gold, it would appear that one strategy is investment in companies that would benefit from a supply demand imbalance in oil. My most recent investment was in a company called Northern Oil and Gas, a company that owns several leases in the Bakken Fields of North Dakota. Please don't run out and buy these shares. There are several factors to consider before deciding that this is a suitable investment for your situation. I like the shares of many companies that own oil reserves in inland locations.
Some Problems Lie Ahead. Look at what's happening in Greece. The bottom line is that their government has promised more benefits to the population than they can afford to pay. The citizens, having relied on those are highly agitated and are protesting in the streets. Our government has done something similar. They promised increasingly large retirement and disability benefits in return for a contribution from its younger citizens and their employers, They added medical care and drug benefits in return for another contribution. Add this to unemployment benefits, insurance on your bank deposits (FDIC) and investment in the mortgage industry (Fannie and Gennie may). Another insurance policy is in place on your private pension accounts (PBGC) and your deposit in brokerage accounts (SIPC). Can your government pay these benefits, if necessary? Not without excessive taxation, inflation of the money supply, or borrowing. Excessive taxaction can slow the economy to a crawl, expanding the money supply can cause inflation, and excessive borrowing can result in lenders deciding to loan their money elsewhere and/or require higher interest rates. The safest way, economically, is to reduce the promised benefits, resulting in the same kind of unrest they are seeing in Greece. We must use our voting rights to get our government to stop promising more than it can deliver and to stop using Ponzi schemes to finance those promises. It will be uncomfortable, but we need to become more self reliant and stop depending on our government to supply what we need to live our lives.
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