We all face the same dilemma as the reluctant gold buyer who confesses in the excerpt below “Gold has already risen massively. It would be awful to buy at the very top of its bull market. Gold brings in no income whereas many shares currently have extremely attractive dividend yields.”
He’s right: The gold we buy just sits there, either gaining or losing value according to market forces that don’t always make sense. The fellow below bought gold at $1,745 an ounce. It’s now at $1,750.
How much higher could it go? In theory, much higher… but it could also fall quite a bit, especially if Europe finally wraps its arms around its growing debt and banking crisis. And it doesn’t even have to show be a firm and convincing grasp of its hard-to-reign-in crisis. Even mere talk has buoyed the markets recently, boosting stock markets while slowing down the rise of gold.
Our politicians on both sides of the Atlantic have proven remarkably clueless in resolving their respective debt issues. So our hesitant gold buyer has every right to fear the worse and he says… “And yet, if we really are facing a potential meltdown of the eurozone, I felt a tiny bit of insurance would be reassuring.”
On this day, November 30, 2011, six days after our Thanksgiving holiday, I can say with 100% confidence that Europe’s leaders have not figured out how to contain its debt crisis. But tomorrow? I suppose there’s always hope, and as irrational as it is, it’s about the only thing keeping gold from skyrocketing. From Britain’s Telegraph…
It has got to the stage where a financial reward is being offered by Lord Wolfson to an economist who can come up with an orderly way for an indebted country to get out of the eurozone. Confidence has drained like water through a sieve.
That is why the interest rate some of the eurozone countries have to pay on new borrowing has been soaring. That, in turn, means that the danger of default has risen. Many banks have lent money to them and are therefore in danger of going bust, too. I have been struggling to find a happy ending to this story. I just can’t see it. No reward for me, then, and I can’t see how Britain can avoid feeling the blast if, or when, it all blows apart.
Depressed by thoughts of this sort, I have resorted – despite loathing to do this – to buying a little gold. I have resisted this for months. Gold has already risen massively. It would be awful to buy at the very top of its bull market. Gold brings in no income whereas many shares currently have extremely attractive dividend yields. And yet, if we really are facing a potential meltdown of the eurozone, I felt a tiny bit of insurance would be reassuring. I bought when the gold price was about US$1,745. I invested through an exchange traded fund, Gold Bullion Securities, which will hold the gold on my behalf, at a price of £10.73. The investment is not much more than token. It represents only 1.5pc of my overall portfolio.
I have also, though – somewhat inconsistently you may think – been continuing to buy more shares. The value is just irresistible – especially when you can see a company moving from being in difficulty with a debt mountain to being one that will, after all, pull through. Barratt, a house builder, fell into that category a few months ago and I topped up my holding paying 71p. Good grief! I have actually seen a profit on that transaction.
So, go ahead, buy a little gold. It is a little pricy. But it will be your most valuable possession if Europe allows messy sovereign defaults to occur. And that is a distinct possibility.