Dear Mr. Berko: I’m an 86-year-old widower. Because of your advice six years ago, my $179,000 individual retirement account grew to a $257,000 IRA, and it pays dividends just under $12,000. Even though the dividends have gotten bigger each year, I’m losing money this year, and my account is down nearly $5,600 since January. Please review my enclosed portfolio. I saw an American Bullion gold investment advertised on TV, and it made lots of sense to me. The adviser there said gold could get to $10,000 an ounce next year. I’m thinking of buying 20 ounces for about $27,000. Would that make sense or not?
— KW, Columbus, Ohio
Dear KW: There are so many TV commercials these days. They follow one another in such rapid succession that I’m surprised you remembered an advertiser’s name and phone number. I know bupkis about American Bullion and don’t care to know more than bupkis about it. But common sense suggests that a 60-second TV commercial, encouraging viewers to convert their IRAs into gold, costs a lot more than an ounce of gold. And those advertising costs are included in the price if you purchase gold from American Bullion. Then you should know that the agent who takes your call from those commercials isn’t a Salvation Army employee. He earns a salary and a commission, and those costs are also included in the price of gold you buy. The folks who own that gold business pay office rent, a phone bill, bills for utilities, postage, etc. They also make sure those costs are included in the price you pay for gold. And the beautifully designed, multicolored sales literature the seller sends you is also included in the selling price of the gold you purchase. The firm’s owners need to make money, and the only way they can profit is to add their profit into the price you pay. Finally, if you buy 20 ounces of gold and the selling firm holds it in safekeeping for you, how do you know your gold is actually there? KW, putting gold in an IRA to make the portfolio look better is like putting lipstick on a pig to make it more attractive.
0.2% rate of return
You might be surprised to discover that if you went all the way back to the time of Christ and bought 1 ounce of gold, the compounded rate of return would be less than 0.2 percent. Gold won’t cure athlete’s foot or create anything. It can’t be eaten. It has no scent. It won’t keep you warm or cure a cold. Gold is a nonproductive asset, and the only reason it increases in value is that the next person buying it will pay more than you because he’s more enthusiastic than you. Gold is not an investment; it’s a bleeding speculation. And it certainly doesn’t belong in an IRA of an 86-year-old widower.
In 1980, gold traded at its highest inflation-adjusted price, $2,337 an ounce. In the following 21 years, gold dropped like a rock from an alp, such that in 2001, the price had fallen to an inflation-adjusted $351 an ounce. Then, during the following 10 years, gold rose to $1,895 an ounce — at which time the metal promptly began to nosedive. It now trades at $1,270 an ounce. Be mindful that in June 1980, the Dow Jones industrial average was 2,750; today it’s 24,300.
