The New Commonsense Guide to Your 401(k): Rebuilding Your Portfolio From The Bottom up

Chapter 55. Investing in Gold

YOUR 401(K) PLAN PROBABLY does not offer an option for investing in gold. Still, because gold was talked up so much after the 2008-2009 market crash, and because investors in gold seem to be the only ones who didn't lose their shirts, you may be curious about gold as an investment.

Here's the story behind gold: Gold has its own fan club, a group of fervent believers dubbed "goldbugs," who think it is the only true source of value and the time is always right to own it, no matter what time it is. Reality doesn't support this notion. The price of gold was fixed at $35 an ounce in the U.S. from 1934 to 1971. Individuals were prohibited from owning it. When the fixed price was lifted, the price tripled in only two years. In 1974, the ban against private ownership was also lifted and private speculation drove the price still higher, to about $200 an ounce. The price fell back to the $170 range until the roaring inflation of the 1970s when it skyrocketed, hitting $875 an ounce on January 21, 1980. When inflation cooled, the prince of gold dropped back to the $300 to $500 range.

But the price has been rising since 2006, probably because of investor worries about inflation and a falling dollar. Gold first broke through the $1,000 per ounce level in March 2008 and then again in February 2009. It traded above $1,000 an ounce again on September 8, 2009, but dropped back below $1,000 at the day's close.

As this history shows, the price of gold is volatile and largely ...