Gold Was Not Always So Golden, Have We Really Forgotten?

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Each time I turn on CNBC, it doesn't take long before I hear some market expert telling me to "buy gold now," or "it's not too late to start buying gold." They talk about how gold is a physical asset that will always be there and how little the downside risk is to owning it. Hmm, didn't someone once tell me this about home ownership?

If I haven't already bought into the gold boom, should I really start now?

I'm reminded of the equities expert who came on CNBC back in the Fall of 2007. The Dow had pulled back to 13,000 after reaching 14,000 a month earlier. He was asked whether we would see 12,000 again before we saw 14,000. On national television he adamantly said we would see 14,000 and not 12,000.

I have to laugh when I think what if the question had been worded 6,600 again before 14,000. His answer would still have been wrong. So much for experts.

As a collector of gold coins, I'll admit the past 10 years have been a good one, but what about the 20 years prior to that? If you've owned gold for over 30 years, it's hard to forget that gold was not always so golden.

Personally, I'm worried that it's starting to feel like deja vu and I've lived through this before. In 1980 we were looking at never ending inflation, spiking oil prices, mid-east turmoil (remember the overthrow of the Shah and the resulting Iran hostage crisis?), and the "evil empire" was still threatening our very existence with nuclear annihilation.

Gold seemed like a no brainer back then too as it soared above $800 an ounce.

But if you bought gold on January 21, 1980 (at the peak of $850 an ounce) and held it for exactly 20 years, then sold it on January 21, 2000 (at the day's close of $287.75) you would have lost over 66% of your initial investment. Heck if you had held it exactly 1 year, you still would have lost over 30%.

Today, with a declining dollar, the threat of inflation, and mid-east turmoil, gold seems like a no brainer. But it also feels a lot like 1980 all over again.

What will happen when the Fed finally starts to raise interest rates and they stop the quantitative easing? What happens if the dollar begins to firm up? What happens if the U.S. and other countries start selling off gold reserves to help service rising debt? Some in the U.S. have already begun calling for the government to raid the piggy bank at Fort Knox.