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Question:


Is now the right time to invest in gold or silver? They seem like really hot commodities.
-CliffordTHP


Answer:


You say “hot commodities” as if that’s a good thing. Gold is indeed hot. Its price has risen about 30 percent since the start of the year and 600 percent since the bottom a decade or so ago. Silver has had a similar run, although it has stumbled lately because it has more industrial uses than gold and so its movements are more closely attuned to the economy. The rally in gold has accelerated as concerns have risen about the health of the financial system globally and especially in Europe, and amid fears for the long-term value of the dollar and other paper currencies as governments print massive quantities to try to keep their economies up and running.
 
Now, with the world apparently on the brink of catastrophe – and with 2008 fresh in investors’ minds, so they have no trouble remembering what catastrophe feels like – just about everyone on and off Wall Street is saying that gold is the place to be. With so many people recommending gold, and therefore probably in it already, who is likely to be left to propel the metal appreciably higher? An adage of investing holds that when the argument for putting your money somewhere is obvious, indisputable and nearly universally held, it’s best to avoid the asset and buy something else. There is a good chance that the price of gold, having risen so far and so fast, already factors in the catastrophe that is so widely feared, so if it comes to pass, there may be little further gain. And don’t forget, the unexpected may happen too – catastrophe may be averted, as it usually is.

 

-Conrad de Aenlle



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