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Huge Risks in Gold Investing

gi-4In recent years, the airwaves have been flooded with TV ads building up the need to buy gold to protect your family’s assets from financial collapse. The spiel of the TV pitchmen (usually B-list actors) is that gold always retains its value. But there’s something the pitchmen aren’t telling you. History proves there are huge risks in gold investing and it is vulnerable to market forces and can lose nearly all of its value due to market fluctuations.

Before you invest in gold for security, you should take a look at some historical gold charts that are easy to find online. Those charts tell a very different story than the spiel the TV hucksters are handing out. Gold has often lost almost all of its value at various times in the past.

In fact, gold actually does a very terrible job of retaining value. In February 1980, the price of a troy ounce of gold rose to a historical high of nearly $860 an ounce, but 20 years later, in February 2000, gold was trading at $310 an ounce. That’s right. Gold lost more than half of its value during those 20 years. A person who put $860 in cash under their mattress in 1980 and dug it out in 2000 would have been better off than a person that bought $860 worth of gold, even with inflation.

Gold did not return to the $860 price (the 1980 high) until November 2007, which was over 27 years later. Yet somebody who had invested in gold at the high price in 1980 would have still been underwater because of inflation. That $860 in 1980 was worth $2,164.01 in 2007, according to a U.S. government inflation rate calculator. That means the gold was still worth less than half what it was in 1980 in 2007.

Even at today’s gold prices, somebody who invested in gold in 1980 would still be underwater. The price of a troy ounce of gold in New York on Dec. 14, 2012 was $1,696.08. When $860 in 1980 money is adjusted for inflation, its value comes out to $2,402.79 in 2012 dollars. That means a person who bought gold at the high price in February 1980 would still be underwater.

As you can see, the actual rate of return on gold investing is pretty lousy when you take a look at the actual facts. Instead of retaining or gaining value, gold has actually lost value since 1980. The real history shows that gold is a worse investment than almost everything, including real estate, the stock market, bonds, annuities, and savings accounts.

Those people who think they are insuring their family’s future buying gold are sadly mistaken. What they are probably doing is guaranteeing that they will lose all or most of their savings and end up with little or nothing. If gold behaves as it has in the past, its price will gi-1probably collapse sooner or later.

The most likely scenario is that gold will fall to below $1,000 an ounce sometime in the next year. If that were to happen, the gold market will collapse completely, because all the people who bought gold expecting the great economic collapse to come will dump it and destroy the price.

Those who don’t believe this should consider that one of America’s largest gold mining companies, Freeport McMoRan Copper & Gold (FCX), just spent around $9 billion to buy two U.S. oil and gas exploration companies, but it is investing in oil and natural gas, not gold. The only reason it is making that move is because it cannot make money off gold or copper. Freeport McMoran owns the world’s largest gold mine, the Grasberg in Indonesia. If it can’t make money off that, how are average people supposed to profit from the gold market?


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