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Wednesday, April 8, 2015

5 Popular Myths About Gold, And Why You Shouldn't Believe Them

There's plenty of misinformation in the public domain about investing in gold and silver. Here are some reasons to be skeptical.

Stefan Gleason of TheStreet recently tackled the five most common gold myths, why they are wrong, and how this misinformation can cause investors to shy away from gold. Gleason lists the myths as follows:

Myth #1: A rise in interest rates will cause the price of precious metals to go down.
Analysts who support this idea ignore the fact that gold and silver had a successful run in the late 1970s, when interest rates were steadily on the rise. Gleason argues that only real interest rates affect the price of precious metals; as long as these are below the rate of inflation, and thereby considered negative, gold prices will likely be strong.

Myth #2: The possibility of government confiscation.
The 1933 Executive Order by President Franklin D. Roosevelt, which ordered U.S. citizens to exchange their gold bullion for cash, was not nearly as far-ranging as many are lead to believe. The government did not seize bullion kept in citizens' homes, and while there was some minor confiscation of bullion from safety deposit boxes in failed banks, another raid of this type is highly unlikely given that the dollar is no longer on a gold standard.

Myth #3: Numismatic coins are "confiscation-proof".
Often perpetuated by dealers of rare coins, the simple fact is that no law says that numismatic coins are not at risk for confiscation. In fact, Gleason suggests American Eagles as an option to consider, saying, "They are considered to be legal tender coins in the U.S., which would seem to provide at least some legal barrier to any potential gold prohibition effort."

Myth #4: Mining stocks can offer greater gains than bullion.
Gleason writes that gold and silver bullion is notably safer, as it experiences much less severe downturns than mining stocks. He adds that "while mining stocks can be attractive at times for speculators or traders, they aren't suitable for most buy-and-hold investors."

Myth #5: The possibility that greater powers are keeping gold's price down.
Price manipulation occurs in all asset markets – not just in the gold market – meaning that no asset class is completely immune. Regardless of whether there is large-scale manipulation or on a smaller level by a few rogue traders, the constant industrial demand for precious metals will likely always make them a safe investment for the "little man" who avoids future markets and owns actual bullion.

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