Twice in my life I have purchased gold investments. Both of those times I invested in gold after being enticed by advertisements that promised security and riches. Both of those times I was frustrated by the reality of losing money on those investments.
I made my first gold investment in 1980 after hearing scare tactics and “calls to action” on the radio. Gold was proclaimed to be a hedge against inflation, and to insure safety and protection of one’s finances against certain economic disaster. Being the prudent investor I thought I was, I purchased gold only to experience frustrating results.
IRA Destroyed By South African Gold Stocks
My gold investment in early 1980 consisted of $1000, with $500 put into an IRA that was invested in South African Gold Stocks, and with the remaining $500 I purchased the South African Krugerrand, which is the “gold standard” of gold coins. As luck would have it, the price of gold steadily went down after that year. By 1985, instead of gold riches coming my way, I received statement after statement telling me how the value of the gold stocks IRA was steadily declining. By that time, the IRA value, further reduced by the annual fees, went to under $100. The value of the Krugerrand coin was about ½ of what I had paid. Being a wiser, more prudent investor, I cashed out the IRA before it went to a zero balance. The gold coin was sold for a $250 loss.
During each of those five years of my “gold fever”, I put $1000 into mutual funds in another IRA. By 1985, the value of that IRA had increased to around $8000. In addition, I purchased a home. During the same 5-year period, my home’s value increased at about the same rate as the new IRA. The fact was that everything I invested in except for gold was doing well.
Everything Goes Up Except Gold
Let’s fast forward to the year 2000: My mutual fund IRA, with additional yearly contributions of $2000, had grown to a value of over $110,000. The equity in my original home purchased in 1980 was over $100,000. The price of gold, however, was about the same as it was 1985. My prudent investor hat was firmly on my head.
Let’s now fast forward to the financial crisis of 2008: Once again, new advertisements were enticing me to buy gold. I wisely ignored those advertisements – until February, 2012, when I bought another Krugerrand – this time for $1600. In just a few months, the value of the Krugerrand was up to $1800, and it was predicted to go way above $2000. However, when 2013 rolled around, the Krugerrand’s value had dropped to $1400. In April of 2013, I once again sold my gold investment – this time at a loss of $200. By June of 2013, Ben Bernanke, the chairman of the Federal Reserve Bank, is taking actions that will likely lead to even gold values going even lower.
All That Glitters Is Not Gold
My IRA is now self-directed and I have carefully selected good stocks paying stable dividends. I am able to live off of those dividends. The home I invested in back in 1980 now gives me a place to live with no payments. Gold, in my experience, produces no positive investment results. There is one aspect of gold that truly shines: It’s the smile it brings to my face when I look at my wonderful wife’s wedding ring. Maybe my prudent investor hat belongs on my head after all.