Gold's not-so-great returns

Don't repeat the mistakes of investors who bought gold during the last peak. The returns don't pay well.

By Kim Peterson Dec 7, 2009 4:21PM
Gold © Comstock Images/JupiterimagesSomething to remember if you're thinking of buying gold at its current high levels: If you bought during the last peak (in January 1980), you would have been better off with an interest-bearing checking account.

Back then, gold was $850 an ounce, Bloomberg reports. If you had bought gold and held on to it, you would have earned about 44%. Gold recently passed the $1,220 mark.

The average U.S. checking account rose at least 92% during that time, Bloomberg reports. And the S&P 500 index had a 22-fold return with dividends reinvested.

But many investors did not buy gold during the peak, and are making a pretty penny as the precious metal just seems to get more precious to investors.

Why is gold doing so well?

“You give up a lot of return for the privilege of sleeping well at night,” said James Paulsen, who oversees about $375 billion as chief investment strategist at Wells Capital Management in Minneapolis. “If the world falls into an abyss, gold could be a store of value. There is some merit in that, but you can end up holding too much gold waiting for the world to end. From my experience, the world has not ended yet.”

Still other investors tell Bloomberg that gold is useless to hold on to for the long term. You want to buy gold when it's doing well and capitalize on that.

But holding on to it for long periods of time don't seem to pay off. Just ask anyone who bought in early 1980.

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