Carl Richards

Carl Richards is a certified financial planner in Park City, Utah. His sketches are archived here on the Bucks blog and on his personal Web site, BehaviorGap.com.

Gold is not an investment. It’s a speculation.

Investments are made by evaluating underlying value. Speculative bets are made by looking at the price of something and simply hoping the price goes up. Investing is about value; gambling is about price.

Gold has no real underlying value. I know there is a market for it. I know it is real, just like real estate was real in 2007.

But what is the value of a bar of gold?

It has no value except the one assigned by a herd of speculators. This is true for most commodities. They don’t actually produce anything. They are raw material. No value. No dividend. No cash flow.

Investing in gold is a very dangerous game right now. Whenever the price of something rises as much, and as quickly, as gold has, we need to stop and consider the end game. While in Florida last week, I was surprised to see guys standing on the street waving “We Buy Gold” signs. They looked exactly like the guys I used to see all over Las Vegas with the signs announcing open houses and touting real estate as a sure bet.

Remember when your brother-in-law told you that you had to invest in real estate because they weren’t making any more of it? Or the common justification people used — that at least with real estate you could see, touch and feel it? It was real! And how did that work out?

Now I hear people using the same argument for gold. It’s real. Tangible. And you can enjoy it because it’s pretty. But what does that have to do with investing?

Keep in mind that there are huge institutional players in the gold market right now. When they decide that the run is over, there won’t be time for you to run to your safe in the basement, pack up all your coins and gold bars, run to the local pawn shop and get rid of the stuff.

I have no idea where the price of gold is going, but for me it doesn’t matter. But if George Soros is selling while your grandmother is buying, you have to wonder who’s more likely to get hurt. The point here is that it (literally) pays to consider that the time to bet on gold was 2007. At this point if you are counting on the gold under your bed to fund your retirement, things could get very ugly.