IRA investors go for gold -- sign of a top?

Posted Apr 25th 2008 4:15PM by Zac Bissonnette
Filed under: Newspapers, Commodities

Today's Wall Street Journal reports (subscription required) that demand for gold from IRA investors is on the rise as the precious metal's value has soared on concerns about inflation, the weakening dollar, and the credit crunch.

According to the Journal, "George Cooper, senior account executive with Centennial Precious Metals, has been handling gold IRAs for 17 years. Back in the mid-1990s, he said he might get one such call every month or two. Now he said he gets up to 50 inquiries daily."

In his book Hot Commodities, Jim Rogers warned that the sign of a top in a market is when speculative money chasing past performance starts to pour in. The flow of IRA money into gold should be seen as a sign of caution for investors.

Remember: gold has been a strong performer of late but its long-term track record. In a letter, S&P's Paul Konstadt wrote that "The price of gold in the US was fixed at the end of WWII and deregulated only in August 1971. Someone who had invested in gold at that time would have had a total return of about 3% per year after inflation from then until now."

Gold doesn't pay dividends and is incredibly difficult to value: it produces no reliable stream of cash and fluctuates based on speculation rather than actual need.

I'd be very careful about jumping on the gold bandwagon, especially in my IRA.

Tags: gold, inthenews, IRA

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Reader Comments (Page 1 of 1)

4-26-2008 @ 9:07AM

Ryan said...

"Gold doesn't pay dividends and is incredibly difficult to value: it produces no reliable stream of cash and fluctuates based on speculation rather than actual need."

This is the most idiotic statement, but it comes from a column writer, so it's understandable.

The reason why GOLD IS VOLITILE and DIFFICULT TO VALUE, you fool, is because the FED prints a dollar which is ALSO quite VOLATILE and changes value CONSTANTLY. IF, there were a gold standard and IF banks knew how to print money properly (opposite of wildcat banking that went on around the civil war) WE WOULD HAVE A RESOUNDING ECONOMY IN THE US!!!!!

But instead, we have morons like this writer.

Study the markets, study the dollar, study the fed, STUDY before you open your mouth or move your fingers over a keyboard.

4-26-2008 @ 9:41PM

anthony arena said...

Incorrect Ryan.
In the short run, a fixed exchange rate regime would make the domestic goods more competitive internationally and the balance of payments equilibrium would be restored,. Essentially, a fixed rate system would eliminate exchange rate risk in the short run. equilibrium would be restored.

However, a fixed rate system would deprive a nation from its monetary independence. Monetary policy would be dictated by the "defense" of its parity. It also constrains fiscal policy and a nation would have difficulty recovering form an economic downturn because there would be strong speculatory and political pressure to remove the fixed rate system and push toward a sizable devaluation, with major economic disruption.

You may feel economically deprived today and see removal of the gold standard as the blame. However, no nation on a large scale has experienced the long productivity growth rate that the U.S. has. Not the Roman Empire, British empire, or even the Chinese today.

Reference: CFA Program curriculum volume 2

4-28-2008 @ 1:55AM

Geoff said...

Actually there are truths to both comments above. Gold is easy to value, as long as you can deal with the money valuations and volatility. That is one component of what is driving gold proces higher. I also agree that holding gold bullion is a dismal investment. You've got holding costs, acquisition costs, selling costs that are not as low as paper equities. Besides - if the world does start unraveling how are you going to realistically use gold bullion for a trading medium. At http://www.profitable-investing.com we focus on purchasing safe, undervalued stocks that are going up. We wouldn't lock our money away in gold bricks! Visit us for our best stock picks every week: http://profitable-investing.com