While many factors determine if an investment is good or bad, gold, silver and other precious metals are too volatile for most investors, particularly retirees, according to AARP. It is an emotional form of money, but it does not produce anything.
Gold prices often increase when there is economic stress or political turmoil. However, when the economy improves or the turmoil subsides, gold prices can drop rapidly, warns AARP. During the 1970s, the oil crisis and high inflation increased the demand for gold, and its price reached a high of $850 per ounce during 1980. However, as the economy improved, gold prices dropped and remained even for over 20 years. The commodity did not reach the $850 mark again until 2008.
Although some investors see gold as a stable store of value, its value is based on supply and demand, like any other commodity, warns Forbes. When the Spanish first came to South America and returned with the gold and silver they pillaged, they sparked rampant inflation. The greater supply of gold and gold money lowered its value, and purchase prices increased.
Although transferring all of an investor’s assets into gold is not a good idea, gold does serve as an effective way to diversify the portfolio, according to Investopedia. The price of gold does not relate to real estate, stocks or bonds, and there are several ways to invest in it.