Gold

Ever wonder about owning gold. No, I do not mean jewelry. I mean owning gold bullion or at least double eagle coins or krugerands.

Every now and then you will hear ads on the radio about what a really good investment gold can be. The perfect way to diversify your investment portfolio.

What they do not tell you is that gold is a commodity. Buying gold makes as much sense as buying sacks of coffee beans or cocoa beans. Same opportunity to make money. Same requirement for storage. Same security requirements so it does not get stolen.

You see, gold is not really an investment. Oh, gold does increase in value over time, but so does real estate, so does coffee, so does sugar, so does cocoa. Why? Because of inflation. Why do you think an automobile that cost 5 thousand dollars twenty years ago now costs 20 thousand dollars? The product did not improve that much over time. The problem is that the dollar lost its value over time.

Now that may not be all that is at work here regarding gold, but I suspect that more than half of the inflated cost of gold is due to the eroding value of the dollar.

Gold does not earn interest, pay dividends, or demonstrate significant growth. Stocks, bonds and even savings accounts do.

Gold merchants are fond of the story about the 20 dollar gold piece. Seems that a 20 dollar gold piece would buy a very nice suit back in the 1800’s. That very same gold piece will still buy a very nice suit today. True, but they don’t tell you the whole story. Had that 20 dollar gold piece been invested in a simple savings account two hundred years ago, it would have earned enough interest to buy the entire clothing store today.

Not convinced? Okay, here is how gold ownership works. You pay for the gold with taxable income. That is income you earn that is left you after you pay income taxes on it. You have to secure the gold somehow in a safe place. Most people use a safe deposit box at a bank. Safe deposit boxes are not terribly expensive but they are an expense that you do not incur with many other real investments.

So you hang onto the gold for ten years. During that time the price of the gold doubles. You decide to take your profit. You sell the gold and find that the proceeds are treated the same as income for tax purposes. In fact, you are required to give your social security number out to the gold exchange before they can pay you for your gold. So, you get taxed on the proceeds at your normal income rate. That could be a serious problem if you are in a high tax bracket or if you have enough gold to place you into a high tax bracket. Could be you may find that your ‘investment’ in gold did not double in final value to you because you had to share your gains with the IRS. At a 50 percent tax bracket that would mean you did not get ahead at all. You did not even break even because you had to pay for a safe deposit box at the bank for ten years.

I think everyone should own some gold. A very small sum. Perhaps one ounce for every member of their immediate family.

Still not convinced? How often do you hear ads on the radio trying to sell shares of Apple computer stock? Evidently Apple computer stock does not need to advertise. Probably because it has more than enough buyers. Now how often do hear ads on the radio trying to sell gold? I hear at least one every other day. Evidently gold is not as popular an item as Apple computer stock. I wonder why?

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