Should I Invest in Gold?

©2009 Bob Sharpe
C.E.O., RealEstateWinners.com

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Whenever the economy sours, a lot of people look at gold as an investment. The sellers of gold come out of the woodwork with persuasive advertising blitzes, and nervous people buy it up.

Gold is a "panic investment." Most people don't buy gold until they panic about the future, and gold prices are at their peak. When confidence returns, gold plummets, and the gold buyers sell at a loss. Who profits? The gold dealers. That's why they advertise so much.

For those with a large portfolio of performing assets, it might not hurt to have a small amount ($1,000 to $5,000) in gold. It won't make you any money, but it could provide some stable liquidity if the Dow crashes below 4,000 or if we have massive runaway inflation. As bad as things could get, it's highly doubtful either will happen.

Questions to Ask Before Buying Gold

1. Can I put 10% to 20% down and finance the balance of my gold purchase at a low interest rate for 30 years?
   
2. Can I deduct the interest on the purchase (if I can get it financed) on my taxes?
   
3. Can I depreciate my gold purchase for a large tax write-off?
   
4. Can I rent out my gold to make my loan payments on my gold purchase, so that my renters would actually paying for my gold?
   
5. If I want to exchange it for another investment, can I defer my capital gains (if I get any) on the sale of my gold?
   
6. If I buy lucrative investment real estate instead of gold, will I get all 5 of the advantages above? (The answer is YES for all 5).

Will You Make Money in Gold?

Gold prices today (Fall, 2008) are around $800 an ounce - the same as they were in 1980, when inflation was double-digit, unemployment was high, and people were scared about the economy.

After they regained their confidence, the price of gold plunged 50% and stayed below $400 an ounce for a decade.

What the gold dealers don't tell you: 1980 dollars are not the same as 2008 dollars. If you bought an ounce of gold for $800 in 1980 and sold it for $800 in 2008, you would be losing money, because of inflation. You would be losing62% on your investment, because today's dollars are worth 62% less than 1980 dollars. Source: www.data.bls.gov/cgi-bin/cpicalc.pl

The price of gold goes up and down, based on people's confidence in the economy. As soon as people get more confidence in the economy, it will go down again. It hasn't made any real gains in decades.

Comparing Gold to Real Estate Investments

If you bought a house in 1980 in a good area for $50,000, that house would be worth $150,000 to $200,000 now. Your total investment would have been about $12,000 (down payment and closing costs). The house would be almost paid off today, and your equity would be $140,000 to $190,000. In addition, you would be receiving $500 to $1,000 a month cash flow income from your investment.