Gold frenzy: Is Glenn Beck's favorite metal a good investment?
Rush for precious metal shines, dims on investors
PHOENIX — It didn't take too long for Bill Haynes, an Arizona gold dealer, to figure out that the person who kept calling about gold coin prices wasn't really interested in buying. Haynes, 67, is the president of CMI Gold & Silver Inc. in Phoenix and sells gold bullion products. The caller, who identified himself as Gene, said he had heard another gold dealer advertise on a Christian radio program. So he had taken $72,000 of his invalid brother's money and bought some collectible gold coins as an investment.
Haynes checked the coin price for him. They were only worth about $48,000.
Gene had been bit by gold — and learned the hard way that there are many different ways to invest in gold and many different types of dealers.
And he is not alone. A new Gallup poll found that gold is perceived as "the best long-term investment" with 28 percent of Americans preferring it over other investments such as real estate, stocks/mutual funds and savings accounts/CDs. The survey found Republicans are slightly more enamored with gold than Democrats, but this may not be surprising with some gold sellers (such as Goldline International, Merit Financial, Lear Capital, Swiss America Trading Corporation and Universal Coin & Bullion) advertising on conservative radio and television programs and on the Internet. Celebrity spokesmen such as Sean Hannity, Glenn Beck and Pat Boone also tout the precious metal as insurance against an uncertain future.
The World Gold Council reported gold bar and coin demand surged 24 percent last year. And gold continues to rise in value.
But how much of the buy gold frenzy is legitimate and how much is just glitter?
Gold on the rise
Andrew Schrage, editor and co-owner of Money Crashers (a popular and respected personal finance blog) has noticed the uptick in TV commercials espousing the benefits of investing in gold. "However, more companies are urging you to invest in gold because they're making money off of the deal, not because it's necessarily a sound investment," he said.
Schrage admitted the price of gold has increased in value by 83 percent over the last four years from about $900 per ounce to about $1,650 currently (gold hit an all-time high of $1,924 in September 2011). But history hasn't always been kind to gold. "In 1980, the price of gold dropped by more than 60 percent in a single year," he said, "and it was not until 20 years later that investors began to once again see positive returns."
Schrage said gold isn't a financially irresponsible investment, as long as people do not fall in love with it.
Eli Lehrer is not in love with gold. Lehrer is a vice president of The Heartland Institute, a conservative think tank, and oversees its Washington, D.C. operations. He thinks other conservatives' fascination with gold comes because of uncertainty, dissatisfaction with President Obama's economic policies and because of the "alluring myth" that gold is a safe haven.
"Buying gold is an ultimate sucker bet," said Lehrer, who invests in short selling gold. "Unlike the other things people invest in, it is literally good for nothing. Unlike stocks and bonds, it doesn't represent a claim on real business assets.
Gold is, of course, useful for jewelry. And it has some limited industrial applications in small amount, but Lehrer doesn't put it in the same class as commodities such as oil. "The only thing gold really reflects," he said, "is people's desire to buy gold."