Gold, or Orange? - Where to Put Your Money
February 8, 2003
By Mark Leavy, CFP®. © 2003 Business Reform
Editor's note: Marc Leavy,CFP® is a regular financial columnist for Business Reform Magazine, the leading Christian business magazine with over 100,000 readers. Each issue features practical advice on operating successfully in business while glorifying God.
When investing, one pitfall is trying to find the “best” place to put your money. The “best” becomes the enemy of the good and you may end up worse.
As our nation readies for war and moves to an Orange alert, the highest state of readiness, investors have been moving to gold. People are asking, “Is gold the best place to put my money or should I prepare for a stock rally like the last gulf war.” I can answer quite succinctly, yes. It is hard for me to be too bullish on gold because I bought some twenty years ago and have yet to reap my initial investment. However, gold is a good place to invest some money as part of a larger strategy.
The difference is investing versus speculating. If you want to invest in gold because you like it as a long-range holding that is acceptable. Gold is an excellent inflation hedge. If you want to “speculate”, that is moving in now because you “foresee” a potential profit, you may be making a mistake. Speculation is looking to make quick profits from temporary occurrences. Investing is deciding to become a co-owner in a long-range endeavor.
Gold is at a six year high so if you are going to buy some you may want to move in slowly over a period of time. There is a resistance ceiling around $400 an oz. If gold moves past that mark, it should continue to move upward.
One of the perceptions about gold is that there is only so much out there. Yes and no. Governments own gold in their banking reserves, and when they decide to put it into the market that drives the price down. For instance, my basement is so full of gold bullion that there is barely enough room for me to sit here. This gold has been out of circulation for decades. When I sell a few tons that will drive the price of gold down.
Overseas investors seem to be buying gold as a bet against the dollar. They see the dollar continuing to weaken. The Treasury and the Federal Reserve have been able to maintain a “strong”, that is stable, dollar for the last decade. There are some fears (or hopes) the Fed will be unable to continue this policy. Ironically, a weak dollar helps another global bugaboo, the trade deficit. As our currency weakens, our goods become more attractive to overseas buyers, thereby reducing our burgeoning trade deficit.
With all the movement into gold recently, not as much has gone into mining, so there is some concern the gold rally is only war-related and not a longer-term rally. Buy gold but be wary of buying only gold. Cash is always good to have. If you are not sure what to do stay in money markets until we have a more definitive picture of the future.
This week the productivity benchmark was a little under its expectation but still at a 50 year high. Higher productivity is what growth money managers are counting on to justify the higher price earnings ratios of stocks. Maybe higher productivity does justify higher price/earnings ratios. Maybe stocks will rally but if not, at least you bought some gold.
The nation’s manufactures had an increase in business in December and then again in January. This hard hit sector is finally getting some good news as factory orders rebounded. The sector appears to be growing and could be signaling a rebound in much needed business spending.
Earnings appear to moving upward. However, companies are being very careful to keep future expectations in line. Management could be nervous about the future, or they could be playing an expectations game choosing to be cautious now and then come out with unexpected good news the next time they report earnings. Employment news was also better than expected with the economy surprisingly creating new jobs at the fastest rate in two years.
Despite good economic news, condition Orange kept investors out of the stock market. If you are buying gold, buy it because it is part of your long-range investment strategy. It may be too late to buy it simply for war-related fears.
Gold is a good investment but make sure you are seeing gold and not just Orange.
Marc Leavy, CFP®, is President of Principled Investing, Inc., a ministry that teaches that we have been entrusted with our Resources for a Reason®. He speaks regularly on stewardship matters and may be reached at mleavy@principledinvesting.org.
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