RUSHVILLE —

Have you seen all the ads on satellite or cable television urging us to invest in gold? I wonder what people think they’re buying if they decide to purchase gold, at least as it’s advertised? The ads make it sound as if gold is a great investment that’s going to appreciate significantly over time – and it could, but there’s a huge difference between buying gold coins with a face-value on them and buying pure gold which, by the way, is currently selling for about $800 per ounce. The gold-colored dollars that we buy at a bank in exchange for a paper dollar are never going to be worth more at the bank than a dollar. The point is there’s a huge difference between a gold-colored coin stamped with “one dollar” on it and an ounce of actual pure gold. The ads I’ve seen make it sound as though buying gold is a great investment that’s going to increase in value over time or at least hold its value. That may or may not be true. Just like stocks or bonds, gold can increase or decrease in value over time. It’s all a function of supply and demand. But there are also some differences the potential investor needs to keep in mind. First, if we buy 100 shares of stock in, let’s say, Procter and Gamble, we’ll receive periodic dividends on that investment as long as the company prospers – and since it’s a pretty safe bet that people are going to continue to bathe, there will always be a demand for soap! Putting that same amount required to buy those 100 shares of PandG into gold is not going to produce periodic dividends. The investor will only receive spendable cash when he sells the gold. The important thing to keep in mind, particularly when we go to a commercial bank to purchase, let’s say, $100 in one-dollar gold coins, is we’ll never get more than our original $100 back from the bank if we try to cash them in five or 10 years from now. So, we will have gained nothing on that investment. The only way those coins will ever be worth more than one dollar is if we take them to a reputable coin dealer who appraises them for some amount greater than one dollar because they’ve become rare, they’re part of a collection, they’re uncirculated or if there’s something else about them that adds value. What’s even more important to remember is that even though they’re called “gold” dollars, there actually is no gold in them at all. They’re just gold-colored, but there’s not even a smidge of real gold in a new government-issued gold dollar. Actually, they’re 88.5 percent copper, 6 percent zinc, 3.5 percent manganese and 2 percent nickel -- no gold. For that matter, they could be made of plastic or silly putty, but if they’re issued by the United States Mint, they are still worth one dollar. What they’re made of really doesn’t add to or subtract from their face value as legal tender. That’s another reason why investing in gold dollars isn’t as risky as investing in the stock market, but there’s a very slim chance of any appreciation in value, either. Furthermore, if you’ve noticed, the ads on television make a point of telling us that the price of gold is higher than it’s ever been! So what? If that’s true, buying real gold now would be a foolish investment if you believe in the old business school axiom “buy low, sell high.” What the ads are encouraging us to do is “buy high” and hope for higher, or that we can find someone dumb enough to buy that gold from us at an even higher price than we paid for it. It could go higher, but it could also tank, so, once again, buying $100 dollars in pure gold, which is about 1/7th of an ounce, is no safer or no riskier investment than buying ten shares of ATandT. There’s one ad that features a fellow jingling a handful of gold coins, or at least gold-colored coins, who talks about what a great investment gold is and how we can have it delivered right to our home. The impression one gets is that having the gold in our possession somehow is safer than money in the bank. My point is that buying gold to hide under the mattress isn’t magically going to turn into a fortune under there. Now, there are also lots of ads that offer to buy what they describe as “scrap” gold from us for cash. One of the most important things to remember is that a gold buyer isn’t necessarily going to give us a fair price for the gold we “mail in” because the buyer is going to re-sell the gold and try to make a profit from it. So, we may only get a fraction of the real value of the “scrap” gold we sell. Eighteen carat gold means that 75 percent of the item is actual gold. Twenty-four carat gold is pure gold and, therefore, significantly more valuable than anything less than that. The only way to really know is to go to a reputable appraiser to find out what that gold jewelry is really worth and the price we should expect to receive for it. Only an appraiser can tell if an item is made of pure gold or an alloy of other metals, typically copper, nickel or zinc, that’s only partially made of gold. Obviously, an item that is only 12 carat gold is only half gold and the other half is some other metal used to create a gold alloy. Despite ads to the contrary, the only reason to invest in actual gold is if you think the economy is going to collapse; otherwise, it’s just as risky as nearly any other investment. The totally safe investments are things like government insured bonds, municipal bonds and certificates of deposit, but the return on investments of this type is historically low. What’s probably best over the long run is a mixed portfolio that includes low risk, medium risk and some percentage of high risk investments. By having a diversified investment portfolio, we can protect ourselves as much as possible against major fluctuations in the marketplace. That’s —30— for this week.