Is Gold a Safe Haven or Illusion?

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If you have $10,000 to invest right now what do you feel will be your safest investment, Intel (INTC) Closing price on 05/18/10 $21.46 or the ETF (GLD) closing price 05/18/10 119.58.

In three years time, which will bring you the best and safest return on your capital? Firstly, understand I am not recommending anyone to buy or sell either, although I do own Intc. I am not qualified to give tips on stocks, nor do I feel is anyone else. Investments are a personal quest and anyone who feels like dipping their feet in the water needs to do their own research and not listen to the tips of stock market gurus, who may have a good run for a short time.

That said, lets look at which investment makes the most sense from a simple mans point of view. The best criteria is, which one of the two can you sleep easy at night owning. Which one may make your stomach churn and which one allows peace of mind. Let’s look at the facts when considering a safe haven in either stocks.

First the gold stock GLD … The investment seeks to replicate the performance, net of expenses, of the price of gold bullion. The trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets.

One of the main reasons gold is sought in times of turmoil is it has the myth attached to it that it is a safe haven in place of money …Wrong! Gold has never saved anyone in times of turmoil. In the last world war, the few rich Jews of Europe that held gold and diamonds as a safe haven went into the gas chambers along with all the many poor Jews… Gold gave no protection. Likewise the Mayans and Incas were wiped out by the Spanish and having gold was one of the reasons they were slaughtered. In turn, the Spanish galleons carrying gold were attacked by British pirates. If they never carried Gold and silver treasures the pirates would have no reason to attack. So, far for being a safe haven, gold attracts robbers and murderers.

Gold coins will always have some value, however, in times of turmoil, if people think they can escape a tyrant or riots by having gold coins, well, ask yourself what an angry mob would do with someone who has a pocket full of gold. So, when people realize gold is not a safe haven, the ETF; GLD many not do so well.

Another myth about gold is it is a second currency…Wrong. Gold is not a currency. It came off the gold standard in 1971 and it does not back any currency. If one countries currency weakens then other counties currencies gain. In the weaker currency, exports get cheaper and that is good for the companies in that country. Also imports get more expensive so less is imported. Eventually the weak country recovers and the roles are reversed. That is what is happening now with the Euro and it is a healthy market that allows that to happen. It certainly is no reason to own gold. For people who want to speculate, then trading currencies of Forex markets makes more sense than gold. I do not trade currencies now as I feel it is too risky at my time of life and I never could get that one right anyway.

With the price of gold around $1230 an ounce, it may slow the sale of jewelry, as less people will be able to afford to buy. With less physical demand and more and more supply each year, the only way gold will keep going up is if the intellectual propaganda story tellers, spin doctors, vested interested experts and fear mongers, get the coverage in the media. to brainwash people, who cannot work out the complexity of gold.

Now, how about Intel (INTC) … This one is easy.

  • It has a yield of 3 %.
  • It has super management, one of the best run companies in the world.
  • It has terrific pipeline of products for the foreseeable future.
  • Its research is second to none.
  • It has a reasonable PE that gives the stock room to grow.
  • Its products are in most computers and will be in cell phones more and more.
  • Its last conference call gave great guidance for the rest of the year as did other large high- tech companies.

    I could go on and on about the innovations at Intel, but do not take my word for it. Do your own research and invest in what you feel comfortable owning. In three years time, you can look back and see if you made the right choices.

    One last point, when I invest in stocks I drip feed in my investments…I mostly buy on dips. Likewise, I sell on up days. That way, over a period of time, I may make 10 buys in a month of the same stock and nine sells, keeping my original first purchase. Over time, the core holding cost of the first purchase is zero, paid for by the profits on the other trades.

    I have invested for 46 years and still enjoy every trade both up and down. On a down day I buy bargains … on an up day I reap the rewards. It really is that simple. I would caution everyone, only invest what you can afford and never on margin. Always keep a cash balance, not in the market, for at least six months of rainy days.

    So, the best safe haven for me between gold and hi quality stocks is no contest. Do your homework and find out what feels best for your digestion not your mind. Do not take my word for anything you have read here, for it is only one mans simple ideas and things change quickly in the world… One of my golden rules; Nothing is written in stone.

    Michael Levy is a professional optimist. He is an international radio host and the author of nine inspirational books including “Invest With A Genius”. Michael’s poetry and essays grace many web sites, newspapers, journals and magazines throughout the world. He is a prominent speaker on health and wellness maintenance, stress eradication, wealth creation and development, authentic happiness and inspirational poetry.