stock market crash of 1987, gold has delivered an annual return of 2.4%, a number that trails the 3% growth rate of inflation. For now, S&P strategist Sam Stovall says that his firm views gold investments favorably because the price of gold is benefiting from a weak U.S. dollar and low _interest rates, which make it easier to borrow to buy precious _metals. “Another factor is that global demand is up,” Stovall says, “thanks to emerging markets such as China and India, where a boost in wealth has people spending more on jewelry.”
Gold seems to glitter every time trouble crops up. Triggers for a gold price rally include terrorist attacks or inflationary pressures. In the 1970s, when oil prices and inflation battered the U.S. economy, gold rose from $36 an ounce to more than $850 by the early ’80s. Conversely, gold sinks when the economy is strong, and stable economic growth in the U.S. drove prices down to about $300 an ounce by 2000.
Saint Louis University English professor Stephen Casmier recently turned to gold for a second time as an investor. Initially, after reading about economic aftershocks the war in Iraq might trigger in 2004, he placed a $10,000 stake in the Tocqueville Gold fund (TGLDX), which as of mid-November had an average five-year annualized return of 28.7%. When he cashed out two years later, the investment had grown to $15,000. When it comes to precious metals funds, it’s good to know what you’re in for. Their price swings can be one heck of a roller-coaster ride. Precious metal funds dove 41.2% in 1997. Their returns in 2005 and 2006 topped 30% on average, according to Morningstar.
Casmier’s more recent foray was more practical. In April of 2007, he secured a position to teach in Madrid for a year. The dollar, meanwhile, was plummeting on currency markets. “I knew my salary in dollars would get crushed by the Euro the way things were going,” he says.
After a few weeks of research, Casmier put some $6,000 into Canadian gold coins known as Maple Leafs. He hasn’t yet had to cash out the 10 coins he bought. One reason is the sheer difficulty of trading gold. Transaction fees ran $20 a coin for the 10 he bought in April. Now, by Casmier’s estimate, he’d have to hand over perhaps $50 in fees each time he cashes out. The upside of his investment is clear, however: Gold fetched about $600 an ounce when he made his investment. Just six months later its price had appreciated to nearly $850, roughly the same price Casmier would get for each coin.
As Casmier discovered, trading in gold can be an expensive proposition. Besides commissions, there’s additional overhead, such as the cost of a safe-deposit box or even insurance. Precious metal funds are easier because they tend to invest in a basket of holdings in companies that mine gold, silver, and other valuable ores. The mutual fund route, however, isn’t foolproof. It’s often recommended that your stake in