Gold is starting to shine again. On Thursday, the price jumped $56 in a day to hit $1,249 an ounce, and its nowup nearly 15% in the last month. You dont need me to tell you the reason. Gold is seen as the ultimate safe haven, and with more than 140bn wiped off the value of the FTSE 100 in the last fortnight, investors are clamouring for sanctuary. Cometh the hour, cometh the precious metal. Is this the moment gold bugshave been waiting for?
All that glisters
Illmakeit clear:Im no gold bug. For years, Ive swatted awaytheirarguments like so many gnats. In June 2014, almost twoyears ago, I arguedon this site that gold is the riskiest investment in the world, and rather than a store of value its a massive store of risk.
At the time, gold traded at $1,249, almost exactly the same price as today. But it had fallen sharply since peaking at around $1,900 in August 2011. Anybody who invested at itspeak would have lostmore than a third of their money. You can also lose money onthe FTSE 100, naturally, which is down a quarter since peaking at7,122 lastApril, but we know stocks and shares are risky, where gold has this wholly unmerited aura of security.
Gold can be highly volatile. Theprice spiked to $850 in 1980, following the Islamic revolution in Iran and Soviet invasion of Afghanistan, thencollapsed to $250 as the panic subsided and stayedthere for more than 20 years. Gold doesnt always have the Midas touch.
There was a fresh rush into gold after the financial crisis but manycameover to my side after the subsequent price collapse. Last August, when Black Monday in China triggered a global stock market meltdown, the gold price was oddly unmoved. Wisely, in my view, investors decided to put their faith in an equity market rebound rather than weigh down their portfolios with gold bars.
Now share pricesare falling again and nobody knows when the routwill end, as a collapse in sentiment threatens a negative feedback loop. Investors are rushing into fixed interest, driving10-year bond yields to near-record lows in Europe and the US (theyrealready negative in Japan). Asa global currency war looms, Ican see why some might prefer precious metal over sullied fiat currencies.
I also acceptthat one of the arguments against gold (that it doesnt pay interest) scarcely applies in an age when cash and bonds barelypay interest either.
Yet Im still not touchinggold. Instead, Im doing what I did after Black Monday and buying shares at bargainprices.I still believe the best way to make money from investing over the long term is to buy dividend-paying stocks and reinvest thosepayouts for growth. Withthe FTSE 100 down sharply andyields topping 4% a year, todays market falls are a golden buying opportunity, rather than an opportunity to buy gold.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Apple. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.