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



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.

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