Gold Bugs

Volatility in the Markets coupled with the run-up in the price of gold (recently hitting $1,000 an ounce before backing off) has caused us to get more than a few questions from clients asking our opinion on the wisdom of investing in gold.

Gold and other commodities do not in and of themselves created value. Only entrepreneurs do that through the manufacture of goods utilizing commodities. Other than this, purchasing gold is purely speculative with no expected rate of return.

As far as buying gold in times of turmoil, Scott Burns, the financial columnist, recently said he would rather buy lots of bullets than gold if he feared calamity.

Has gold been a very good investment? Jeremy Siegel, the Wharton finance professor and best selling author, calculated that after inflation one dollar invested in gold 200 years ago would be worth all of $2.55 today.

That same dollar invested in stocks would have grown to be over $750,000.

In the long-term investing in broadly diversified asset classes beats gold bugs hands down.