Should I buy gold?

This story was originally covered by PRI’s Here and Now. For more, listen to the audio above.

Gold has become one of the world’s hottest investments. China recently nearly doubled its gold reserves, and the price of gold has been going up. That is in part because the price of everything has been going up, in terms of inflation. “People often think of gold as a storehouse of value, a protection against inflation,” David Case, Director of Global Research and Editor at the Global Post, told Here and Now. But that price may not keep going up forever.

“People buy gold when they feel uncomfortable, when they panic,” Case told Here and Now. “The good thing about buying gold is that it’s nobody else’s liability.” When people buy bonds, they’re relying on a company or government to pay them back. When people put their money in a savings account, they’re relying on the bank to pay them back. Case says, “You’re not relying on anyone else to pay you back when you buy gold.”

“On the downside, gold’s value is questionable,” Case says. He points out that “more than half of the gold out there is owned by people for investment purposes, people who bought it hoping that they can some day sell it for a higher price. Of the remaining gold, 80 percent of the gold in commerce is actually jewelry.”

This points to the fact that gold is discretionary. People don’t actually need it. You can’t eat it, and you can’t bring it to the store to buy supplies.

The value of gold has actually crashed in the past. In the late 70s early 80s, the price of gold was higher than it is now. But then, according to Case, the price plummeted after the Federal Reserve started to fight inflation and raise interest rates. Investors started lending money, instead of buying gold, and the price of gold plummeted.

“Gold is a great investment as long as someone else comes along to buy it at a higher price,” Case says. “Once that stops, you’re in trouble.”

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