How Do You Invest in Gold? It's Like Making Love to a Porcupine—Very Carefully
02/11/1980 at 01:00 AM EST
"This is the greatest gold rush in history. The one in 1849 looks penny ante compared to the gigantic Las Vegas crap game that is now in progress." Thus does Louis Rukeyser, 47—author, columnist and host of the top-rated PBS TV series Wall Street Week—characterize the breathtaking course of the current gold market. Long considered the investor's last line of defense against inflation and economic chaos, the gold market itself has become chaotic. In the aftershock of recent events in Iran and Afghanistan, the price of the precious metal rose and fell as much as $150 in a single day. To help the average investor understand gold madness, Rukeyser spoke with PEOPLE correspondent Patricia Burstein.
Is gold a wise investment?
Right now, with the price of gold so volatile, it should not be touched by the average investor with a 10-foot pole—not even a gold one. The current price of gold has no basis in economics; it doesn't belong above $300 an ounce. I think gold is wonderful for dental work. It looks terrific on beautiful women and is a nice way to keep your watch on your wrist.
How much can the price of gold rise?
It can go as high as hysteria will carry it. We may see this much-talked-about $1,000 an ounce within a matter of weeks. But remember, any commodity that goes up this rapidly can plummet as fast.
Could you give an example?
Look at gold between late 1974 and mid-1976, at which point the price was cut nearly in half. Anyone who thinks that can't happen again is not paying attention.
What is the psychology of the gold bug?
In investments the two conflicting emotions are usually fear and greed. In the case of gold both are working to push the price up. There is fear because of international anxiety, and greed because it looks like a good thing to get into. So with fear and greed operating on the same side, gold is certainly not the place for widows and orphans.
For those who want to invest in it despite your advice, how can it be done safely?
They should buy monetary coins, such as the South African krugerrand, because their exact worth is known. Each coin contains an ounce of gold. Thus you know from day to day what your coin is worth. I don't suggest going in any deeper than 15 percent of your portfolio.
Why not rare coins?
As with antiques, you need to have some expertise in this area; the value is not exclusively in metals.
Are there any advantages to owning gold bullion?
By the standard tests of investments, bullion is a very poor one. It pays no dividends or interest. It creates storage problems and involves an assay which on resale could mean additional costs. Also, you can't eat it. We are seeing the burgeoning of gold passbook accounts, gold certificates and other substitutes that eliminate the headaches of owning the bullion itself.
What are your thoughts on a gold futures contract?
For the average person tempted to engage in the commodities market there is a preferable alternative, which is to fly to the Paradise Island casino. That way the person will know exactly what he or she is doing and not have any illusions about being an investor. Virtually every year nine out of 10 people who enter the commodities market are losers. You would be better off walking a tightrope between the towers of the World Trade Center.
Are gold-mining stocks less risky?
Many of these stocks have attractive incomes and some may well score future gains. But I think unless you get very good advice and are willing to watch them carefully, this is an inherently dangerous area. Gold-mining stocks have tended not to go up as rapidly as the price of gold in the last five years. When you buy such a stock, particularly one from South Africa, you are making more than a financial investment. It may depend on military, political and international changes. Despite the excellent profits to be made, they are not a buy-and-put-them-away thing for the average investor.
Should people sell the family jewelry for the gold in it?
I have a little trouble advising people to sell Grandma's heirlooms. But if there is no sentimental value or you are planning to give them away or sell at some point, this may be a good time to start letting Grandma turn a profit for you.
Have you sold any personal treasures?
I was tempted the other day to sell my gold watch and band and with the enormous profit go and buy myself a better watch with a leather band. But since then the price of gold fell $200 so I would have to investigate whether it's still a good move.
Where should people buy and sell gold?
Go to a reputable source, whether it's a bank or a coin dealer who has been around awhile. Anyone who buys a cut-rate gold coin from a man in the street deserves the ill fate that will most certainly befall him.
Do you own gold?
The only gold I have as an investment is indirect, in the ownership of companies with natural resources including gold. I do not have kruggerands or bullion. I have no moral objections to owning gold. I just think there are better places to put my money.
Stocks will be the big buy of this decade. They are way underpriced. Also, well-selected real estate and the family home remain excellent investments.
What about silver?
It's called "the poor man's gold." Now that it has gone up even more rapidly than gold, people have started to buy copper and call it the "poor man's silver." The next step, presumably, is to find the poor man's copper.
How would you recommend getting into silver?
A good way is to buy a bag of old U.S. coins minted in the days when they still contained silver. Stay away from special commemorative plaques and medallions unless you admire them for their beauty instead of their metal properties. As for the silver futures market, advising anyone to participate is like encouraging an infant to light your cigarette.
If the world goes to pot, will those who have the gold be safe?
If and when the civilized world falls apart, with rioters in the street and marauders in the countryside, many gold investors believe they will take their coins out of the attic—where they presumably stored them because they didn't trust banks and safe-deposit boxes—and be able to purchase whatever they want. The mobs will part as the waters did for Moses and let them through with their gold and silver to take care of themselves and their families. If you believe that scenario, I have some real estate in Arizona I'd like to offer you.