By Seeking Alpha,
November 20, 2009 at 11:30 AM
Back in 1987, I was working retail for a company that was then a major foreign exchange and precious metals dealer. A non-descript man entered the office with his family. The man, who was wearing a flannel shirt one might use for garden work, asked me what our price to buy gold was. I asked what form his metal was in, expecting one-ounce bullion or coins. “Kilo bars,” he said. We didn’t even have a price for a kilo bar on hand, so I asked the customer to wait for a moment while my coworkers and I scrambled behind the scenes to get a quote. When I gave the customer the price, he dropped almost $30,000 in gold in on the counter, then enough to buy two new cars—one a BMW. While this experience (and my speculation that the man had just unearthed the gold from his yard) forever cemented my impression of gold as a safe-haven asset, other aspects of the situation are instructive regarding the current gold market. The man was selling his gold at a price that was probably around $450 an ounce, and history showed that he was wise to do so. Even with gold’s recent appreciation and the financial crisis crushing the stock market, large cap equities (going from Dow 2500 to 10,332 as of market close on November 19) have outperformed gold (about $450 to $1141 an ounce) by a large margin since 1987. And that doesn’t even take into account that stocks can earn dividends, while holding gold can incur costs in the form of storage and/or insurance expenses. (For that reason, other than for people who want to keep a stash of gold at home to prepare for the most extreme scenarios, I suggest that people who want to invest in gold consider equity-based investments like the dividend yielding shares of one of the established gold mining companies such as Barrick Gold (ABX), Newmont Mining (NEM) and Gold Fields Limited (GFI).) »