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Ask Dave

No Safety Factor In Gold

Steve is retired, and he has about five percent of his retirement savings in gold and silver. He calls in from Denver, CO, to ask Dave if he should hang on to these investments, even though prices have declined, so he'll have something of value if the economy goes bad quickly. Steve looks at the investment as a safety factor, but Dave has some news for him.

QUESTION: Steve calls in from Denver, CO, to ask Dave about investments. He’s retired and has about five percent of his retirement savings in gold and silver, which he’s been acquiring the last few years. Steve has seen prices decline, but he’s wondering if he should hang on to these as a safety factor in the event the economy goes bad in a hurry. He wants to make sure he’ll still have something of value.

ANSWER: What’s the safety factor here? And if everything goes downhill, why does it have value? Gold has this weird allure and mythology around it that says, “I’ve still got something that people will take when the economy crashes.” But the truth is, there’s not been an instance when people used gold as a medium of exchange in a crashed or failed economy since the Roman Empire. People still use gold because they believe in it, but we also believe in green paper with presidents’ faces on it. So, gold has no more intrinsic value than green paper. The only reason we place value on it is because we, the society, place value on it. A failed society might not place value on it anymore. In a completely failed economy, the first step is usually a takeover by a Fascist government. After that, you get a new color of money – of paper – with a new president’s face on it. Then, the old stuff isn’t worth anything. It’s very seldom that you ever see gold come to the rescue. I don’t believe in investing in gold for that reason. It’s mythology. Plus, the track record on gold, as far as a rate of return, is horrible over the long haul. There was a time a few years back when everyone was going crazy on it, but other than that? Ugh!