Gold’s ‘safe harbor’ may not be that ‘safe’ for investors

The Bakersfield Californian
September 22, 2011

Worries about the potential of a global recession are rocking the stock market and sending investors scurrying for “safe harbors” where they can park their financial ships.

Many of my boomer clients are looking for ways to protect their savings and to provide sufficient incomes in future years to fund their retirements.

With the price of gold tripling to more than $1,800 an ounce in the past year, clients and students have asked me about investing in gold. When you look at what is a “sure bet” right now, gold may seem to be “where it’s at” as an investment.

But I liken this investment to a “gold balloon.” It’s the hot “stock” to buy now, but when gold goes out of favor, it can go out fast.

Consider that the gold exchange-traded funds (ETFs) have gone up nearly 3,000 percent since 2004. But between March 2008 and August 2008, the value of gold dropped nearly 20 percent. Ouch! Between May and June 2006, it dropped nearly 20 percent in just one month!

And therein rests the problem. Gold is a volatile commodity.

The upside in investing in gold is the potential for a significant return. But the downside is that the investment does not pay dividends. And when the value of gold goes down, likely you will not be able to “get out” fast enough to prevent significant losses.

Should you put all your money in gold? I hope not. But it may make sense to include gold in your investment portfolio. Investment vehicles, such as ETFs, can be a safer alternative than responding to offers presented on late-night cable television, and through unsolicited emails or snail mail promotions to invest in gold mines, or buy bullion.

ETFs have been around since the early 1990s. Unlike mutual funds, they trade more like stocks and can be bought and sold throughout the day. A reputable broker can advise investors how ETFs work and how they can fit into an investment portfolio.

Some investors — particularly those who succumb to the glitter of high-pressure advertisements — may want to buy “physical gold.” Go ahead. But when the prices fall, you will be stuck trying to sell it. And there are costs associated with insuring, storing and transporting “physical gold.”

I don’t own gold. A vast majority of my clients don’t, either. In my managed “high net worth client” accounts, it’s there. But then again there’s usually a broker managing it, who “hedges” those positions. His job is to watch it every day. If there’s a time to sell, he’ll get his client’s investment out. The average person can’t do that. Nor can the average person react fast enough.

Television investment guru Jim Cramer suggests a person spend one hour per week researching every stock they own or are considering buying. That should include gold.

Doing your investment homework is something I stress in my Levan Institute retirement planning class. (Go to to sign up for the class that begins in October.) I also provide strategies intended to help people sort the “scams” from the “sound investments.”

“Gold fever” is fueling a booming industry of get-rich-quick schemes. Some of these schemes recently have grabbed spectacular headlines.

Regulatory agencies and trade associations recently have issued “consumer alerts” and tips for identifying fraudulent schemes. These groups include the Federal Trade Commission (, the Financial Industry Regulatory Authority (, the National Futures Association ( and the Securities and Exchange Commission (

Investors are warned to be wary of:

  • Promises of quick returns and claims that a gold company is a “buyout target.” Large exploration companies traditionally have aggressive acquisition strategies. When a large exploration company “buys out” a smaller company, investors can realize a windfall. But promises of bogus windfalls abound.
  • Investment proposals accompanied by claims that inflation or economic meltdown are imminent.
  • Claims that boast of a company’s proximity to existing gold reserves.
  • Companies that recently have changed their names to reflect the present “gold rush.” A bit of research may reveal these companies were once associated with other “boom” investment schemes, such as real estate, time-shares, health spas, etc.
  • Pushy promoters who demand investments must be “made now.”

The FTC advises investors that the value of gold cannot be guaranteed. Gold stocks and funds should be purchased through reputable licensed brokers. Bullion bars, ingots and coins also should be purchased through reputable sellers who can document values. Independent appraisals are advised.

As I warn my Levan Institute students and retirement planning clients, do not consider all investment proposals that glitter as being “solid gold.” Investigate and consult with a reputable financial planner, accountant or attorney before investing your hard-earned cash.