Gold: A Sound Investment or Overrated?

You’ve probably noticed by now that gold, and more specifically skyrocketing gold prices,  is just about the only thing people talk about these days. Buying gold has become the new trend in investing as the “gold-boom” continues. With the stock market looking as risky as ever, bonds at the mercy of impending inflation and savings interest rates still yielding at low levels, there has been an understandable flight to gold in the recent past.

Gold, as it always has been, is a natural hedge to currency – and more specifically the US dollar. It isn’t the only one, mind you, it’s just arguably the most popular one. Any precious metal, commodity and in some cases, even stocks will serve as an inflation hedge. As long as your asset isn’t directly tied to the dollar, you should be fine.

Yet, investors have been rushing to gold during every scare the economy has experienced, pushing prices into historic highs. According to, an ounce of gold currently costs about $1,325. What does this mean? It means that if you’re thinking about investing in gold, you should be REALLY sure about why you’re doing it.

Golden Moments in U.S. History

To get a better perspective on the country’s history and the economic impact of gold, here are a few highlights over the past 200 or so years of the precious metal:

1873: Congress passes The Fourth Coinage Act, embracing the gold standard and shifting away from bimetallism. Though not legal, gold was basically adopted as the only standard for the dollar.

1896: William Jennings Bryan delivers his famous Cross of Gold speech at the DNC, advocating that the inflation resulting from a silver standard would allow poor farmers and debtors to pay off debt easier.

1900: The Gold Standard Act is passed. This time, it’s legal.

1933: Executive Order 6102. President Franklin D. Roosevelt made it illegal to hoard gold coins, bullion (gold bars) and certificates. Citizens were forced to sell their gold at $20.67 an ounce, after which the government raised the price of gold to $35.

1944: After surviving through The Great Depression and World War II, 44 nations sign the Bretton Woods Agreement. After realizing the limitations of the gold standard, international currencies established a fixed exchange on the dollar, which was then convertible to gold.

1971: With the U.S. deficits and inflation spiraling out of control, concerned foreign countries repeatedly redeemed their dollars for gold. This forced President Richard Nixon to take the dollar off the gold standard, adopting a fiat monetary policy. The price of gold at the time was a mere $35 an ounce.

And now, here we are. With U.S. deficits once again growing and another round of stimulus spending seemingly underway, the threat of hyperinflation coupled with unappealing returns in other asset classes has been the main drivers of gold prices.

However, in the last decade, the price of gold has more than quintupled from $270 in 2000, with a lot of the damage done in the last two years. You can thank the financial meltdown for most of that.

Thoughts to Consider Before Investing in Gold

Before you go out and buy a truck full of gold bullion, there are a few things you need to consider. Ask yourself if it’s a good idea to jump into a market that has already been red hot with gold prices at record highs. Then ask yourself if the near-term threat of inflation is actually real. Some economists reason that inflation, and hyperinflation for that matter, won’t be a concern for at least a few more years down the road.

Lastly, if you’re sure you want to buy gold, think about the ways you’re going to do it. Owning gold bullion/bars isn’t the most practical approach. A slightly more practical strategy is buying gold coins. You could also look into gold ETFs, mutual funds or gold exploration stocks. Whatever your preferences are, be sure to weigh the pros and cons of investing in gold.

This guest post was written by Henry Truc from Go Banking Rates, a website that brings you informative personal finance content and helpful tools, as well as the best interest rates on financial services nationwide. Follow them on Twitter at @GoBankingRates.

Subscribe via email or follow us on Facebook, Twitter or YouTube to get the latest news and updates

1 thought on “Gold: A Sound Investment or Overrated?”

  1. Interesting thing about gold, it’s price usually goes up the most during periods of economic uncertainty as we’re currently experiencing now. Nonetheless, never before in history has gold been so important to industry, namely technology. This double whammy is bound to keep gold at high price levels for a while, but just like stocks, real estate and oil there is bound to be a correction at some point. As the economy heats up and the dollar and paper assets strengthen, I would not want to be in gold when that correction takes place.


Leave a Comment