Tuesday, September 08, 2009

Is now a good time to buy gold?

"Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

Warren Buffett
When it comes to the gleaming glimmer of gold, there are two schools of thought: It's the safest place to invest your money, or it's a startlingly wasteful investment.

I've always tended to lean towards the latter - although today's newspaper headlines revealed that gold has rocketed through the 'psychological ceiling' to top $1,000 an ounce for the first time this year. Some investors who boarded that train at the right moment last year will presumably be very happy.

But is now a good time to buy gold?

"We are unconvinced that all the ingredients are in place for a sustained surge higher in gold,"said John Reade, from USB - although investors from COMEX are of a different opinion. They estimate gold will hit $1,600 an ounce by December.

There are two ways to invest in gold. There's dabbling in the market - buy bullion as part of your 401k or portfolio. When you buy gold bullion like that, you're at the mercy of brokers and the market, but it has the potential to net you fast rewards (and equally fast losses.)

But another option is to take a leaf out of Auric Goldfinger's book and buy gold coin instead. When you physically possess your gold, it takes on a much more visceral value. Although Warren Buffett might argue that gold really has no practical value, there are generations of gypsies, Jews, pirates and spies who've lived or died as a result of carrying their wealth on them.

In the James Bond novel 'From Russia With Love' it was a handful of shiny gold sovereigns that saved his life in his climactic battle with SMERSH's 'Red Grant.' A pirate's golden earring was traditionally of just enough value to pay for his funeral when he died. It's traditional for gypsies and Indian women to openly wear their gold, so if they are separated from their families they have something of value to barter with.

The possession of gold has always had a value beyond it's worth. As Auric Goldfinger himself explained:
"All my life I have been in love with gold. I love its colour, its brilliance, its divine heaviness. I love the texture of gold, and the warm tang it exudes when I melt it down into a true golden syrup. But, above all, I love the power that gold alone gives to its owner. I have worked all my life for gold and, in return, gold has worked for me and for those enterprises that I have espoused. I ask you, is there any other substance on earth that so rewards its owner?"
So by all means, buy gold or buy gold coins. It may be a risky investment for short-term gain, but it's a commodity that's always held some intrinsic value. Although I might agree with Warren Buffett that gold is an impractical investment - thousands of years of history has shown it to always be one that's heavily in demand.


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