|by John Waggoner, USA TODAY|
Did you know that a billionaireis predicting an economic collapse? No? Did you know that the Federal Reserve is printing so much money that you'll need a million dollars just to buy aquarium gravel? And did you know that goldis the only real form of money?
If you do know all these things, you probably get much of your information from people who sell gold, all of whom will be happy to take your fake U.S. currency in exchange for gold. By and large, gold has been a lousy inflation hedge and, for the last three years at least, a lousy investment.
But gold is cheap right now — or at least, cheaper than it has been — and so are the stocks of the companies that pull the yellow metal out of the ground. For that reason, it's worth looking at both — although if you plan to invest in either, you should be aware that there's plenty of room on the way down as well as up for gold.
People love gold. Gold coins are lovely: A St. Gaudens
And it's rare. All the gold in the world would fill an
Gold has a reputation as an inflation fighter, but the data really doesn't support that. From 1980 through the end of October, consumer prices have gained 209%, while gold has risen 129%.
In fact, gold's performance bears fairly little correlation to inflation. From 1980 through
"Gold does well when
Gold does do well, however, when the value of the U.S. dollar falls against other major currencies. Unfortunately — dire warnings from Fed-haters aside — the dollar has risen sharply against the euro and the yen, and this has hammered the price of gold to
The arrival of gold exchange-traded funds, which buy and sell the physical metal, may have made things more volatile for gold investors. Gold miners added 3,054 tonnes of gold to supply in 2013, according to the
The fall in gold, in turn, has pummeled the prices of gold mining stocks, which is the normal way these things work. Gold stocks typically rise and fall far more than the price of the metal itself. Consider a miner that could produce gold for
Gold miners have an additional problem. Like most companies in boom times, they increased production as prices rose. That's not necessarily bad. But they also opened more mines with a higher cost of production, meaning it cost more for them to produce that extra good. As gold prices fell, profit margins fell along with stock prices. The iShares MSCI Gold Miners ETF (RING) plunged 52% in 2013 and has fallen another 21.2% this year, according to Morningstar.
What's the outlook for gold?
If gold remains reasonably stable, the mining companies have a few good things going for them. Many are shutting down their costlier operations. "All the companies I've been meeting have been talking about reducing costs," Mancini says.
The worst-case scenario for any gold-related investment is if the metal continues its fall. It's worthwhile to remember that gold's low was
If you're optimistic about gold, or simply want insurance against everything in the world going to flinders, the least risky way to play it is through a gold commodity fund, such as the
If you're really optimistic, you might consider an equity gold fund: The top performers the past five years are in the chart. Index fans should prefer iShares MSCI Gold Miners ETF.
Bear in mind, however, that being optimistic about gold means being pessimistic about nearly everything else. Those guys who have been touting gold since 1980 have been wrong more often than they are right. The real winners haven't been the ones wailing about the end of the Republic. They're the ones who have invested in its growth. Remember how gold has gained $129% since 1980? During the same period, the Standard and Poor's 500 stock index, with dividends reinvested, has soared 4,787%.