Even at These Prices, You Should Consider Investing in Gold

Remember when bell-bottoms were hip? Or back when people valued their privacy -- before social media (and reality TV) enabled people to broadcast their every move? The prevailing attitude toward gold has also shifted over the years.

During the 1970s, gold was as popular as bell-bottoms. Then people moved away from the ancient monetary metal and, by the 1980s, placed their full trust in governments and central banks to safeguard the value of their unbacked paper currencies like the almighty U.S. dollar.

Now the tastes have shifted once again -- and for good reason.

The Problem with Paper Money


Most onlookers scoffed at the recent downgrade of the nation's credit rating. Because the Federal Reserve can print dollars at will, they might argue, the risk of a U.S. default must be zero. But as economist Marc Faber points out, history is full of examples of nations essentially defaulting on their debt -- not by refusing to pay their creditors, but by paying them back in "a worthless currency."

So the credit downgrade is perhaps best understood as a downgrade of the U.S. dollar, based on an outlook that the only practical means of repaying our growing mountain of debt will be by continually devaluing the world's primary reserve currency. Ben Bernanke's announcement last week that the Federal Reserve will keep interest rates artificially low through mid-2013 offered powerful confirmation of that unfortunate outlook for the currency of the land.

Our 40-year experiment with unbacked paper currencies is not faring well. And while gold has gradually nudged its way closer to the mainstream of financial markets, it's not there yet. And that's good news for those who missed the metal's run-up until now.

The Start of a Sea Change

Even as recently as six years ago, there were still strong prejudices against investing in metals. In 2005, I first began encouraging people to place a portion of their assets into gold and silver. The typical response? People looked at me like I had grown a second head.

Since that time, I've watched as attitudes toward gold have run the gamut of indifference, disbelief, and even anger -- all natural human reactions when a new reality challenges someone's long-held beliefs. Consider what economist Nouriel Roubini said last year, perhaps his worst call ever, when he characterized as "delusional" anyone who believed gold would remain above $1,200 per ounce.

It has taken the first 10 years of gold's resurgence in price for its reputation to recover accordingly. Just recently, we can see some acceptance of gold's resurgent role in the modern financial world now that the metal has proven its value as an ultimate safe haven.

How to Make Room for Gold in Your Portfolio

I can certainly identify with anyone who may be feeling uncertain about whether to initiate some exposure to gold at these unprecedented prices. I do sense that gold could encounter some selling pressure after the incredible run it has had lately, and in fact as a gold investor, I am hopeful for a correction in the near term to help ensure a more orderly long-term advance.


Because I know bubbles form only sometime after an asset has percolated its way into the mainstream consciousness of financial culture, I am confident in saying that gold remains comfortably removed from bubble territory. Though plenty of newcomers may have entered the gold market this summer, I think most investors still have not made room for gold in their portfolios.

Fortunately for latecomers, most gold miners' stocks have failed miserably at matching the price gains of gold bullion to date, creating a compelling opportunity to acquire exposure to gold at what amounts to a significant discount to the metal's current price.

Newmont Mining (NEM) beneath $60 per share and Goldcorp (GG) under $50 represent incredible bargains relative to the enormous quantities of gold reserves these miners have amassed over time. Given the choice between paying full price for gold through a bullion vehicle like the SPDR Gold Trust (GLD) or building a stake in a deeply undervalued producer like Northgate Minerals (NXG) or Eldorado Gold (EGO), my inner bargain hunter keeps my own focus squarely upon the miners. Some of the silver producers, particularly Hecla Mining (HL) and Silver Wheaton (SLW), offer a similarly effective discount for those seeking exposure to the "poor man's gold."

The markets for gold and silver are growing increasingly volatile, so please tread with caution and consider building exposure in stages rather than all at once. If you ever need some guidance or encouragement along the way, stop by my blog.

Motley Fool contributor Christopher Barker owns shares of Eldorado Gold, Goldcorp, Hecla Mining, Northgate Minerals, and Silver Wheaton.





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mrshamash

How it all started….
In 2002, Christopher Thompson took over as the chairman of the World Gold Council's executive committee. At the time, the WGC was in a heated debate about whether jewelry was the best way to keep the price of gold moving higher. Thompson had another solution. He realized that a huge catalyst for the price of gold would involve the creation of an ETF (Exchange-Traded Fund) backed by physical gold reserves, which could be traded by anyone with a brokerage account on the NYSE.
So, in 2004, the SPDR Gold Trust went live. It attracted more investment for the month than all but two other funds offered on the NYSE, including mutual funds -- even though it traded for only eight days. In year and half the price of gold shot up nearly 60%. Since then, this ETF has become the fastest-growing ETF in history. Thompson's solution was a success; but it begs the question: Excluding Mr. Thompson, the ETF managers and speculators, who else found this to be a “Success”?
DISCLAIMER: I have been involved directly and indirectly in Jewelry Industry for the last 30 years.

July 11 2012 at 3:29 PM Report abuse rate up rate down Reply
mrshamash

What have you learned from history? ….ouch? …. Bubble?
If you want to protect your cash, open a saving account (it’s insured by FDIC). Gold is not insured. It is a commodity that it’s price being fueled by investor speculation (hello Mr. Barker).
The key word here is…SPECULATION

July 11 2012 at 3:27 PM Report abuse rate up rate down Reply
intelligenceforrent

http://www.intelligenceforrent.com/

November 07 2011 at 7:43 PM Report abuse rate up rate down Reply
leetjbgsucjob

Okay all you real citizens. Time to apply for food stamps.Nazi Pelosi said so!

August 15 2011 at 6:58 PM Report abuse +2 rate up rate down Reply
1 reply to leetjbgsucjob's comment
leetjbgsucjob

Say three Hail Warren Bents and Two our Lee Resolutions and Four Bggdg's and all is forgiven!

August 15 2011 at 7:28 PM Report abuse +1 rate up rate down Reply
atlaspreciousmetals

If you're considering investing in gold or silver first watch this video “The Realities of Physical Precious Metals Investing -- What You Need To Know BEFORE Jumping On The 'Gold Rush' Bandwagon”

http://www.atlaspreciousmetalsexchange.com/what-you-ned-to-know-before-investing-in-gold

August 15 2011 at 4:41 PM Report abuse rate up rate down Reply
atlaspreciousmetals

If you're considering investing in gold or silver first watch this video “The Realities of Physical Precious Metals Investing -- What You Need To Know BEFORE Jumping On The 'Gold Rush' Bandwagon”

http://www.atlaspreciousmetalsexchange.com/what-you-ned-to-know-before-investing-in-gold

August 15 2011 at 4:40 PM Report abuse rate up rate down Reply
judre43

Buying gold when prices are at record highs can't be the right thing to do.

August 15 2011 at 4:40 PM Report abuse rate up rate down Reply
1 reply to judre43's comment
tuco60

Exactly what I was thinking. There are a whole lot of people buying gold who are gonna lose their life's savings when that market drops out. Makes me think AOL does nothing more than sell ad space labeled as news. Wonder what Chris Barker had to pay for this ad?

August 16 2011 at 10:48 PM Report abuse +1 rate up rate down Reply
clindroth

I sent this to the SEC Friday. “High-Frequency Short Sellers are Naked” Do you know what this means? If you don’t; you need to find out. It will change how you invest for your future and retirement. Cliff Lindroth, San Diego CA
8/12/11

August 15 2011 at 4:32 PM Report abuse +1 rate up rate down Reply
Fred Beggs

Gold is worthless if nobody wants it.

August 15 2011 at 4:09 PM Report abuse +1 rate up rate down Reply
nomorebarry7

Gold is just shiny lead without the benefits.

August 15 2011 at 3:16 PM Report abuse +2 rate up rate down Reply