A wise man once said, "The worst reason to buy a stock is because the price is going up," That goes for gold also. Gold hit a record high of $1,226.10 on December 3,2009 and closed out the year at $1,096.35, up 24.8 percent for the year 2009. While a 24.8 percent gain in one year is impressive, it isn't a reason to buy gold- or anything else for that matter.
In early 2000, suckers rushed into the NASDAQ as the tech bubble grew, and they were killed once the bubble popped. The same thing happened with real estate in 2007. Suckers always come in late,pay top dollar, and get crushed. The same can happen with gold.
The lesson is this: even if you buy real money(gold), you can still lose money. That is why knowledge is the new money. With the right knowledge, you can profit from the peaks and valleys of the markets.
The economics are simple supply and demand. If there's a lot of money looking for a return, interest rates will be low. If there are fewer dollars looking for a return, then bonds have to pay a higher rate of interest to attract investors.
Junk bonds traditionally pay the highest rates of interest because they're the riskiest.
Once bond interest rates start to climb again,cash will flow out of gold and into the safety of bonds' guaranteed return. It that happens, the gold bubble will burst and gold prices will fall.
This is valuable knowledge that, if true, could save investors tons of money.
What if interest rates go up because bond investors are selling rather than investing in bonds?
This scenario is a long shot, but stranger things have happened.
What if the Fed has printed too much money and the bond market is afraid the Fed has gone too far?
The bond market is afraid of 2 things:
1. A collapsing dollar
2. Rising inflation
As long as Ben Bernanke keeps emplying quantitative easing (printing money) the bond investors will be nervous. In other words, the smart money is worried, and may dump bonds, believing that US bonds are no longer safe investments at any interest rate.
If interest rates go higher, the economic recovery will die, the stock market rally will halt, and the real estate market will crash again. A depression may follow.
What will Ben Bernanke and the Fed do if all confidence is lost in their ability to save the US economy? Will they keep printing more money? What will then happen to gold and the bond markets? Your guess is as good as anyone else's.
My point is this: "don't just buy something because prices are going up." Study, learn, and find your own reasons for investing.
About Silver
Today, due to use in the electronics industry, silver is more scarce than gold. While gold sits in vaults, silver will be in short supply in less than fifteen years.
Silver is still relatively inexpensive. It's a poor man's gold. If there's a precious metals bubble, and prices do drop, the precentage losses on silver will be a lot less than on gold.
Remember, if you don't have a lot of money, protecting your losses is more important than going for gains.
Never invest more than you can afford to lose.
