Of course, there is no shortage of legitimate ways to invest in gold, which is gaining some new attention lately due to global instability, as well as the potential inflationary effects of a growing economy and an escalating trade war. Gold prices may be lower these days in the face of a soaring stock market, but trading volume has been trending higher.
Investors traditionally look to gold as a safe haven because its performance tends to be predictable. If the dollar or the stock market decline in value, gold typically rises as people look for a place to preserve their wealth. As a result, your financial advisor might suggest you own gold as a sort of insurance policy against market declines.
“Buying gold has typically paid off in times that haven’t been so good, whether that is the Great Depression, or whether the dollar has gone up rampantly due to inflation,” Boneparth said.
But while the price of gold tends to move in the opposite direction of stocks, the returns on your investments are less predictable. In the past 10 years, for example — a period that included the 2008 financial crisis and the Great Recession — the price of gold has risen a respectable 32 percent. But the stock market as measured by the Standard and Poor’s 500 Index has blown away that performance, rising more than 150 percent.
What’s more, the price of gold is more closely tied to emotion than are many other types of investments — the supply of gold is relatively constant; it is the demand that fluctuates. That means that despite its reputation for safety, gold prices can turn quickly.
“Investing in gold does pose its risks just like any other investment,” Boneparth said.
Because of that, experts agree that even if you believe in the theory that gold is the ultimate storehouse of value, it should only make up a portion of your holdings.
“Too much of any one thing would bring us away from diversification,” Boneparth said.
That is why con artists like Bates, who pitched precious metals above all else, do so much damage.
“Gold and silver is money,” he would tell attendees at his seminars. “Anything else is credit.”
Even if Bates had been able to deliver all of the metal his investors thought they had purchased, those who followed his advice were taking undue risks.