10 Major Myths About Gold Investment

by on November 2, 2010

Gold is becoming a preferred investment hub for investors. The popularity of investment in gold has increased in the past 10 years. The investors, who invested in gold achieved five times of their money during the past decade. But, there are some myths associated with gold investments. We will talk about such major ten myths, which are as following:

Gold is a safer investment hub

It is purely a myth that this metal is safe hub to invest. The metal lost over four-fifth of its purchasing power from 1980 to 2000. It climbed down by a third during the times of economic depression in 2008. Gold should not be considered different from other metals, as even there is volatility in the bullion market.

Gold is priced highly

In a scenario, when the actual worth of gold cannot be determined, it is not possible to say with assurance that it is priced highly. Dylan Grice, a strategist at SG Securities says that if the gold is compared to the money supply, it is still valued below its historical standards.

Portfolio should have 7% of gold so as to ensure security

It is not understandable that why the figure 7% has been recommended. In a scenario, when 93% of the remaining portfolio fails, 7% investment in gold could not compensate for the whole worth of portfolio even if the price of the gold is doubled.  If there is a surety of gold boom to loom, then one can take risk of infusing funds in out-of-the-money call options on the SPDR Gold ETF or on the Market Vectors Junior Gold Miners ETF.

Purchasing Power of Gold has been maintained over thousands of years

How can one estimate the purchasing power of gold over thousand years, when it is not even easy to assess the same for last 50 years. Some believe that it has been included in the Bible that 1 ounce of gold could buy 3000 loaves of bread, but there are no evidences for the same. Even if the gold’s purchasing power had remained the same, then its inflation adjusted rate of return would have been zero, which is provided 2% on inflation-protected government bonds.

Risk involved in investing into small gold-mining stocks

Every individual mining stock involves risk. But, the risk involved in investing in small mining stocks monitored by the Market Vectors Junior Gold Miners possesses less risk. Sometimes, small miners offer a profitable deal in comparison to big companies, depending on the price.

Investing in gold is better than investing in other precious metals

It has been seen that over the years, silver and platinum has moved in the same direction as gold has advanced.  Silver has surpassed gold by 25% and platinum by 5% over the past 20 years. But, there has not been steady movement in the prices of the different metals. To get a profitable deal, one should trade on these varying moves wisely. Other than gold also, there are ETFs to invest into silver and platinum.

Gold mutual funds are similar in nature

This is not the case. Take instance of Vanguard Precious Metals and Mining, which now has been shifted to the natural-resources category from the bullion one. Also, majority of the gold mutual funds don’t make investment in gold only, but in stocks also.

Gold doesn’t propel smart money anymore

For at least five years, people are preaching that smart money have got out of gold. Even then, John Paulson a hedge fund honcho has pooled around $4 billion of the funds of his company in the SPDR Gold Shares ETFs. Also, George Soros has injected an amount worth $650 million in the gold ETF.

Government created money is just paper, while Gold is the real money

People term gold as real assets and thus value it more even more than the paper money. But, it is not so. Accumulating gold only cannot save one from a situation of crisis, as liquidity is provided by cash only.

Gold stocks derive more profit than gold as a metal

The profitability of gold stocks depends on the price you are paying. It could rise or fall accordingly. No doubt for many years, the stocks offered by some big companies were highly priced, but in the economic crisis of 2008, the gold stocks fell below the metal.

(photo credit: Getty Images)

{ 6 comments… read them below or add one }

Pat March 20, 2013 at 6:18 am

Where did you get that a portfolio needed 7% investment into gold? I’ve heard of 5, 10, and even 15% but this is the first time I hear this random number 7 being brought up.
Pat recently posted..Jim Sinclair: Gold Was Shorted On Premise That QE Bailouts Would Be Replaced By Depositor Bail-InsMy Profile

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frankyhopkins May 4, 2013 at 12:31 am

I agree on you, gold is one of the most stock where you can invest in your money. And I believed that gold price is arising from time to time. Make a wise decision in investing your money now. Nice thought!
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Investing in metals September 6, 2013 at 6:45 pm

Gold has always been a great way to invest your money, but you must pick the right time to buy.
As of now the price of gold is down and is going to climb again very soon hovering around $1400, could go up to as much as $2400… Is this making it the best time to invest your money, I sure say yes…. Best returns if you can buy low at the right time, and always remember that gold is long term investing method and no quick rich thing…
Investing in metals recently posted..The price of gold is down – The perfect time to buy!My Profile

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Gold Guy January 14, 2014 at 5:11 am

Wow, what a plethora of information you have here for folks considering investing in gold and precious metal in general. I certainly will be bookmarking and sharing this with others so they can visit this post to get more info on this subject matter.

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Gold Prices January 17, 2014 at 4:51 pm

Investing in gold it is not that much risky business and the same time it is good thing to do since it can help you to hedge against inflation today.

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James Goldman March 10, 2014 at 8:01 am

Good information that everyone should read before investing in gold. While the price of gold has dropped dramatically since this post I think people will be looking back in a few years wishing they had bought while it was at a bargain price.
James Goldman recently posted..How to make $2500 per month in residual income on the gold trading boomMy Profile

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