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Smart investing: Is it time to buy gold?

Gold doesn't pay interest or offer dividends, but investors have flocked to bullion in the last decade as stocks have tumbled. Is it the right time for you to buy gold?

Flakes of gold gathered by miners at the old Savage Rapids Dam site line the edge of a gold pan on June 22 near Grants Pass, Ore. The price of gold jumped to record highs in June above $1,250 as investors fled the stock market. Is it time for you to buy gold?

Jim Craven/Medford Mail Tribune/AP/File

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What asset has appreciated more than 300 percent since 2000?

It's not US stocks. The Standard & Poor's 500 index is down more than 20 percent from a decade ago. Emerging markets? Up less than 150 percent. Oil? Ditto.

The winning investment is gold. An ounce of the precious metal, worth $285 in mid-2000, was hitting record highs in June above $1,250.

Is this the time to jump on the gold bandwagon? Some people think so.

"Investors have come to embrace gold as part of their portfolios," says one New York authorized purchaser of coins from the United States Mint. He sees gold as a haven from the global and US economic turmoil.

And there are shiny new reasons to buy. In June, the US Mint began selling a 24-karat American Buffalo one-ounce coin in a fancy box, a Jane Pierce First Spouse half-ounce gold coin, and the 2010 American Eagle Gold Bullion Fraction Coins.

But to many investment advisers and economists, gold is a poor investment. It doesn't pay interest or offer dividends. The only way to make money on gold is "to find a bigger fool" to buy it from you, says Paul Kasriel, an economist with the Northern Trust Co. in Chicago.

If the goal is to avoid inflation, forget it, says Mr. Kasriel. "There really is not much inflation in the developed world." The US consumer price index declined 0.2 percent in May and is up only 2 percent versus a year ago.

Moreover, though the Federal Reserve is keeping short-term interest rates extremely low, the nation's money supply has been growing at less than a 2 percent annual rate. So, if the late economist Milton Friedman remains right that inflation is "a monetary phenomenon," the prospects for high inflation soon are low. "The risks are more toward deflation than inflation," says Kasriel.


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