Originally posted 11-10-08

With all the difficulties on Wall Street and the constant indications that we may be headed for a deep recession, many Americans are considering cashing in their stocks and investing in gold. Gold has long been considered the safest of investments in uncertain times and many investors have bought gold as a refuge from the uncertainty of the markets.

Gold’s value as a safe investment, however, is greatly overrated. If the US currency was to completely collapse and chaos reigned over the world, bullion or gold coins would be great to have.
Short of that scenario, the value of gold has proven to be very volatile and unstable. This year alone, the price of gold has been on a wild ride. It started the year at $850 an ounce and climbed all the way to $1,011 an ounce back in March. Since then, the value has varied wildly between these two points and has now dropped to around $730 an ounce.

As of the end of October, the value of gold has declined 14% for the year. While your stock portfolio may be even worse off, this is hardly the safe investment that many believe it to be. That said, gold can be an effective choice for diversifying your portfolio as an investment for 5% to 10% of your assets. This is because, despite its lack of price stability, its price variations are not highly correlated with stocks.

As always, your best bet is to maintain an appropriate mix of investments (stock, bonds, real estate, etc.) based on your retirement timeline and risk tolerance level. No investment is 100% safe, but it is important to keep you eyes on the long term goal and never put all your eggs in one basket.

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