The 4 Biggest Gold Myths as Seen on TV

buying gold, when to buy and sell gold
Just turn on the TV to CNBC, MSN, or Bloomberg TV and you will find a range of financial pundits practically frothing at the mouth over gold…about why to avoid it.

I have noticed that over the past ten years that investors, commentators, bloggers and analysts who have missed the move in gold tend to be the loudest opponents about its investment merits. They almost seem angry about gold and silver and the people who own it.

Personally, I think they are unconsciously pissed off that they completely missed the investment of the decade.

If gold was a Hollywood actor it would be Rodney Dangerfield. For those of you that do not know Rodney Dangerfield, his most famously quoted line was, “I get no respect.”

Gold has been the Rodney Dangerfield of investments for the past 10 years. This is slowly changing. One day investors are going to wake up and gold will be the Brad Pitt of investments.

So why do people keep treating Brad like Rodney? Good question. It might be in part because of the four biggest myths I hear from the talking heads on TV.

Let’s review them right now.

Myth #1 = "Gold is expensive."

John Hathaway summed it up best, “The best assets in bull markets always seem too expensive.” Granted, he is a money manager for the Tocqueville Gold Fund but I think it is true despite his bias.

When you buy a “rising tide” investment the price is always higher than it was before.

Here is a little history on gold and the US Dollar.

From 1776 to 1933 a dollar was worth 1/20th of an ounce of gold.
From 1933 to 1971 a dollar was worth 1/35th of an ounce of gold.

On Friday, June 10, 2011 the somewhat free market of the world says a US Dollar is worth 1/1542nd of an ounce of gold.

So gold is more expensive then it was, and it will continue to get more expensive each year. With Dollars, Yen, Euros and Pounds being created by the trillions, and nobody really knowing how much is going to be printed into existence it is hard to determine the value of anything.

It is especially difficult to value what a US Dollar is worth…well, actually it’s not. Today, a US Dollar is worth 1/1542nd of an ounce of gold.

Myth #2 = "Gold is risky."

It is true that gold is riskier today at $1,542 then when it was priced at $250 an ounce. But gold is not the riskiest asset.

Stocks are riskier. Real Estate is riskier. US Dollar backed bonds are riskier and the US Dollar is riskier. So, maybe gold is riskier today than it was ten years ago. But when compared to all the other assets it seems to be the least risky of them all.

Myth #3 = "High gold prices will bring on a lot of new production and then the price will collapse.”

There are about 6 billion ounces of gold in the world and every year that number increases by about 1.3% from newly mined ounces. Unless we go into space and find gold on some asteroids, it’s going to be hard to increase the production radically enough to meet demand and cause the price to drop.

As the world’s wealth increases, more people are going to want to hold a portion of their wealth in gold and silver.

During the 1970’s gold boom, only in the West were investors “allowed” to own gold. For most of the world at that time, like in China and Eastern block countries, owning gold was illegal.

It wasn’t until 2004 that the Chinese government made it legal to own gold and silver. In fact, they not only made it legal, but also now heavily promote buying gold.

Myth #4 = "Gold sentiment is at an all-time high."

With late night ads offering to buy your gold at home for 50 cents on the dollar, one must notice: the sharks want to buy your gold. They do not want to sell you gold. If sentiment is high then why are all those people selling their grandma’s jewelry? Oh yeah, that’s right, they are broke and they need the money.

When Merrill Lynch, JP Morgan, Raymond James, et al. start openly selling gold funds then and only then will gold be in the third, and final stage (“The ‘Main Street’ is Buying” stage), of this bull market.

As of right now, the only people I see buying gold are the same people that have been buying gold for the past ten years. Not many new buyers have come into the market yet.
The biggest problem I see for the individual investor is that they do not have a strategy on how to buy…and when to buy…and how long to stay in. And then if they do start buying gold they would probably have to keep it a secret from their peer group who thinks only in terms of stocks and bonds.

If you find yourself ready to upgrade the level of your investment peer group and finally use an investment strategy that will signal you when to buy, hold and sell then you may have interest in my personal investment peer group called, The Insiders Club. I can give you more details about our gatherings and how we are able to leverage the hidden mis-pricing of the stock market to our advantage.

Together we are growing and protecting your wealth,

RC Peck