When markets get turbulent, people ponder the "safety" of gold. Of course, never mind that gold has proven far from safe over the years. Between its peak in 1980 and late 1999, it plunged from $1,000 an ounce to just $255.
And if you want to measure the full loss to investors, you need to factor in the missed opportunity of putting that money to work in the stock market instead. Nevertheless, the gold shills are everywhere today. You see them on the TV, in the paper, and hear them on the radio. They're selling fear.
If you want to put some of your money in gold, you don't need to send off for gold coins. You don't need to send a check to some stranger. You don't need to pay postage. And you certainly don't need to hide your gold coins in a sock, or pay to put them in a safe deposit box.
There's a perfectly good exchange-traded fund that will do all this for you, and you can invest in gold with a click of a mouse at any online brokerage.
State Street chief executive Ron Logue has found the Midas touch since he launched the
streetTRACKS Gold fund (GLD) two years ago. In fact, I called him "Goldfinger" a couple of years ago when I figured out that he -- or rather, the fund -- controlled the largest single deposit of gold in private hands in the world.
At the time, the fund held about $3 billion worth of gold; last month, the figure topped $10 billion.
State Street is the blue-chip Boston investment company behind the ETF that tracks the S&P 500. When people invest in the gold fund, State Street buys gold on their behalf in the London market. The metal is held in secure vaults managed by HSBC.
That bank, incidentally, is so old it used to be part of the financial arm of the British empire. HSBC stands for The Hong Kong and Shanghai Bank, and is still known among old hands in London as "Honkers and Shankers."
Last week one gold Web site was hustling 1 oz. American Eagle gold coins for $710. At the time, gold bullion was trading in the spot market for $664 an ounce. So if you bought the coins you were already paying 7% too much.
If that doesn't sound like much, note that the Tuesday slump in the stock market that made headlines worldwide amounted to less than 4%.
Even better: shares in the streetTRACKS Gold fund happened to fall slightly below the bullion price. Each share gets you a tenth of an ounce with your name on it, but they were selling at the same time for just $65.94.Compared to the gold hustlers online, that's a saving of $5 an ounce -- before postage, storage, insurance and so on.
The real case for gold isn't that the financial world is going to come to an end. It isn't even the risk of runaway inflation. It's the risk to the U.S. dollar.
America is living way beyond its means. We are running up massive federal deficits and borrowing hundreds of billions a year from the rest of the world to support our lifestyle. Friends at one of the biggest (U.S.) investment banks in London refer to the greenback these days as the "American peso." One of them -- a conservative financial type -- even calls the U.S. "a banana republic ... without the bananas."
But don't just listen to them; listen to Congress. In January 2005, as President Bush was gearing up for his annual state of the union address, the Congressional Budget Office issued its review of the economy and government finances.
Little noticed in the document was this prediction: "CBO assumes that the exchange value of the dollar will decline gradually over the next 10 years because the current-account deficit will remain large in dollar terms (though not keep widening) and will add to the supply of dollar assets for investors."
You can take your own view on this. A shrewd investor I know who was buying gold back when it was $255 an ounce and no one wanted it also likes silver these days. You can buy that cheaply online as well, through the ETF
Silver Fund (SLV) run by iShares giant Barclays.
Everyone has their own view on the metals. But if I were going to buy them as an investment, I would rather buy the ETF than the coins.
In keeping with TSC's editorial policy, Brett Arends doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Arends takes a critical look inside mutual funds and the personal finance industry in a twice-weekly column that ranges from investment advice for the general reader to the industry's latest scoop. Prior to joining TheStreet.com in 2006, he worked for more than two years at the Boston Herald, where he revived the paper's well-known 'On State Street' finance column and was part of a team that won two SABEW awards in 2005. He had previously written for the Daily Telegraph and Daily Mail newspapers in London, the magazine Private Eye, and for Global Agenda, the official magazine of the World Economic Summit in Davos, Switzerland. Arends has also written a book on sports 'futures' betting.