Friday, December 19, 2008

Going for the gold?

A friend of mine has a brother-in-law who says he's divesting all stocks, bonds, property and buying gold. His claim is that the U.S. is going to hell and the only thing of significant value will be precious medals.

I took a look at the price of gold and it's had a pretty good run lately. Since 1971 the price of gold has went from around $30 an ounce to just over $800. That's a 2566.7% return over 37 years. Here is a graph from Gold Price Dot Org.

Just because I'm interested, I did a similar historical price check on the Dow Jones Industrial Average. In 1971 the DOW was 874. Today's it's trading at 8577. Not counting dividends, that's a 881% return over the same period.

If you look at gold, it had a similar run from 1971 to 1981, but then dropped off significantly until rallying during the past six or seven years. While the numbers are impressive, there seems to be significant risk in gold.

I'm a stock guy so I don't plan on selling off my ownership in companies to invest in gold. However, I'm interested in getting other's opinions. What do you think about gold? Is it a good investment for the long-term?

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