Gold Hits Record High: Is It Too Late to Buy?

Last Updated May 12, 2010 12:33 PM EDT

Gold is on a tear. Yesterday it broke through its record high of $1,226.30 a troy ounce and so far today it has just kept on going, trading mid morning at $1,239.19. Since early February, spot gold prices are up 14 percent, as measured in dollars.

Analysts attributed the frenzied buying to worry about Greece and the world's debts, but here's the short and sweet reason why investors like gold: It works in both fire and ice scenarios. Consider the fire: If Europe and the U.S. decide to pay off their giganta-debts by printing money, allowing inflation to run wild and paying everyone off in worth-less (or worthless) currency, gold will increase in value against those devalued currencies. That's why everyone's been buying gold lately.

But consider the ice -- if there are defaults, or if big debts instead plunge Europe and the U.S. into another deep recession, gold would likely remain a solid item of value at a time when stocks and bonds would likely plummet. People think gold is like insurance against all versions of economic chaos, and that is why they say good things are "solid gold."

So, should you pick some up of that shiny insurance? Here's my personal point of view: I am never, ever in favor of buying anything when it is at its all-time high. Not gold, not stocks, not even raspberries at the market -- it's just not the right season. It is true that I have missed out on some sweet rewards that way. Think of the records tech stocks kept bursting through in 1999 and 2000, or the way home prices kept going up, again blowing through records, in 2004 and 2005. But I'm not the only one around here who is suspicious about the latest gold rush. "This is how markets look at turning points," MoneyWatch Editor-in-Chief Eric Schurenberg said back in December when gold was also hitting record prices (see video below).

But we are not analysts paid to call those prices, and many of the trained professionals think there's still real upside on gold. Michael Ludwig of BNP Paribas sees it hitting $1,530 this year and David Wilson of Societé Général says $1,650. James DiGeorgia of the Gold and Energy Advisor says fallout from the Greek debt crisis and the U.S. deficit will eventually propel gold to $2,500 and possibly $5,000 an ounce.

If you own gold or are thinking about buying some, here are some points to consider first.

  • If you still want to buy, use an ETF. You really don't want to deal with the buy retail, sell wholesale, rent-a-safe-deposit-box world of owning actual bullion or coins. Instead, you can buy shares of an exchange traded fund that holds the actual gold for you. The advantages of this are: no fuss, no muss, and you can sell whenever you want, as long as the stock market is open. There are three gold ETFs to compare: Spdr Gold Trust (GLD), iShares Comex Gold Trust (IAU), and ETFS Gold Trust (SGOL).
  • Think about silver. It usually moves in tandem with gold, but hasn't quite busted its records yet.
  • Skip the jewelry for a while. Find another way to celebrate an anniversary or birthday, because those prices will skyrocket, too. Or learn to love faux gold. It's in season.
Photo by Motoyen on Flickr.
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