Investing in Gold Does Have Risk

The amazing run of gold futures has been all over the news of late, as well it should be. Gold Futures have jumped to more than $1,300 an ounce, easily breaking their old record high levels. Low interest rates and a weak dollar have contributed to the demand greatly, but the overall economic downturn and the flight to safety should be counted as the number one reason that gold prices have hit this amazing record.

The extremely high price of gold has even gone mainstream in the last year or so. If you watch any television at all you have probably seen commercials telling you to sell your gold jewelry or gold belongings now for the best price possible. The advertisements are all over the newspapers and magazines as well. Any company who deals with gold has been buoyed by this run in the price of gold and they are looking to get their hands on everything gold that they possibly can. No doubt there have been quite a few individuals who have been able to take advantage of this and put some extra money in their pocket, which is never a bad thing.

We are currently in a period where it seems everyone thinks that the only direction gold prices will go in the future is up. Analysts are calling on everyone to rush into gold futures because of the safety and huge demand. The investment community seems to be convinced that an investment in gold is a sure thing.

I fully understand the value of gold and how it is important to have in a diversified portfolio, but I also know that the levels of optimism surrounding gold prices right now are concerning. This is becoming what looks like a dangerously crowded trade. As a financial professional I have seen many times that when investors start believing there isn't any risk in a particular asset, it is usually a time to be very worried.

Has buying gold always equaled terrific profits for investors? If you take a look back at historical gold prices you'll find it definitely has not. As the economy suffered in the late 1970's and early 1980's gold futures were trading at about $700 an ounce. Fast forward 20 years to 2000 and gold prices were sitting at about $260 an ounce. Obviously, if you had gone all in on gold futures around 1980 and needed the money for retirement in 2000, you would have been sorely disappointed.

Gold is an extremely valuable asset, but don't let all of this talk about gold prices skyrocketing continuously cloud your judgment. Investing in gold still carries risk, just like all other assets.