Is It Too Late to Invest in Gold?

For the past 10 years, gold has been surpassing expectations. It had dropped to $272 an ounce in 2000, and, at the time, few thought the price would rise dramatically. But over the past decade the price kept rising – breaking records – until it hit a high of $1,226 in December 2009. With each new record, many observers predicted that the price could not possibly go much higher and that the bubble would burst. As of this writing, the price has dropped to $1,092, with many analysts saying that the bubble has finally burst. But that has been said many times in the past decade, only to be followed by another rally.

Back in 2000, those who predicted higher gold prices were envisioning a worsening economy, which usually drives up the value of gold. It is the standard investment that many turn to for security in uncertain times.

Quite often the price performance is the inverse of the stock market’s, which does better in a stable environment. Some say now that the economy appears to be steadying, gold prices should stabilize or drop. In fact, many financial advisors caution against jumping into the precious metals market, fearing a plummet. Even some of those who previously encouraged precious metals investing are backing off these days.

“It was great to get in about three or four years ago, but now you have to be much more cautious,” Cary Carbonaro, a financial planner with Stonegate Wealth Management of Clermont, Fla., told the Orlando Sentinel. “It has had a huge run-up, but it is a cyclical thing.”

Even George Soros said, during the World Economic Forum in Davos earlier this year, “The ultimate asset bubble is gold,” but then, according to reports, doubled his own investment in gold a month later. That could be because he foresees an increase in inflation, which also drives up the value of gold.

Those who want to jump on the golden bandwagon are advised to be cautious in taking that leap. Even the most enthusiastic advisors still say investors should put only a small percentage into precious metals – 5 to 10 percent of their total investment money at most. Also, most advise their clients to invest in a fund rather than buy the metal itself, mostly for security reasons. After all, what’s the use of an insecure investment meant to bring security in an insecure time?

Posted on May 1, 2010
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