A Word About Gold

Every 15 minutes it seems that there is an ad on the radio to buy gold. That kind of continual hype should be a red flag in itself. Just like there used to be ads about easy riches in flipping houses…. True, gold has had a nice run up in recent years; but it goes up and down like everything else! Although it has been a store of value over the very, very long term (i.e., longer than a lifetime!), it has gone through very long periods where it lost value in real terms (i.e., after inflation). For example, gold traded at $850 per ounce in 1980, then traded at only $900 per ounce in 2009 – 29 years later. (And, in fact, dropped to $343 in the interim, in 2003!) During those 29 years, inflation averaged 3.55% per year. So the real, purchasing price “value” after inflation was only $315 in 2009!!

I read a practical example that stated it would take the same amount of gold to buy a good suit of clothes today as it would have in 00 AD! Essentially kept up with inflation, and no more.

While it is wise to invest a portion of your money in something that often moves independently of the financial markets and also serves as protection against inflation, academic research shows that a broadly diversified basket of commodities is typically better than gold. In fact, many of our clients’ portfolios include about a 5% allocation to such a basket of commodities.

About Kate Willeford, Dental CPA & Advisor

Dental CPA & Advisor serving accounting, tax, management, transition and financial planning needs of dentists since 1975.
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4 Responses to A Word About Gold

  1. Snicker at what you will, but the fact is that paper currencies are being printed in blizzards and are going down in value. Look at the purchasing power of the dollar since 1913!

    Want to play it safe with Treasuries of various durations and a NEGATIVE after-inflation yield? (And keep the dying Welfare State on life-support in the process?)

    How about bonds, whose value can be wiped out in the upcoming inflation Tsunami?

    Fact of the matter is, dentists have opportunities to buy gold pre-tax which makes it a sweet deal. Gold is much easier to warehouse than barrels of oil or bushels of wheat or porkbellies.

    There are unusual times, present more danger than the Great Depression in many respect.

  2. Kim: I wasn’t snickering. The gold bugs may be right.
    Everything is valuable at *some* price. Even old Enron at $.01 per share may be good for papering your bathroom.
    But nothing is a value a *any* price. Google may be a steal at $500, but not at $1,000/share.
    One precursor of a bubble is when “everybody knows” it is smart to buy ____. (Insert your own investment of choice.) A bubble is always propped up by a good story – and by folks anxous to “pump and dump” and sell the latest investment.
    In fact it is *not* a foregone conclusion that rampant inflation is around the corner. Some indicators still suggest that deflation is a possibility.
    All I am saying is that there is no sure thing. And that gold may be reaching a peak in its cycle.
    Don’t forget that the IRS is not totally stupid. If your gold “casting units” drive you lab/supply bill out of line, even a steam operated IRS computer can catch that anomoly…..
    Rick Willeford, CPA/CFP

  3. Thanks for sharing such useful information about Dental Service

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