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The Trouble With Investing In Gold

The price of gold took a precipitous drop in mid-April, dropping by more than $200 in less than a week. With gold prices already down this year, this sudden steepening of their dive gave investors a new wild card to consider.

While many were clamoring to join the rush to the exit from gold, others will view this drop in prices as a buying opportunity. Still others will quietly congratulate themselves for having stayed on the sidelines throughout. Bank rates may not be very exciting right now, but when you see the value of an investment take a double-digit percentage drop in a matter of a few days, it is a reminder that excitement can cut both ways.

This latest development is just the latest twist in a history of gold that is often as enigmatic as it is dramatic. Gold investments are often touted as a type of hedge or safe haven, but prices are so subject to speculation that gold has a history of boom-and-bust cycles.

Gold's boom-and-bust history

The first major run in the price of gold took place from 1970 to 1974. Over those four years, the price of an ounce of gold jumped from $38.90 to $183.77, an increase of 372.42 percent. This was followed by a 27.21 percent decline over the next two years. Then, from 1976 to 1980, gold rose from $133.77 to $594.90, an increase of 344.72 percent. Predictably, this was then followed by a 48.23 percent decline over the subsequent four years.

Then gold did something different. It essentially went sideways from 1984 to 2001, with a series of relatively small increases and decreases more or less cancelling each other out, leaving gold with an overall decline of 10.23 percent to show for that 17-year period. More than that decline, it is having dead money for such an extended period of time that would be most damaging for investors.

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