Friday, June 5, 2015

Ads for Gold utilize Fear Factor

For some time now, radio and television ads have been promoting purchases of gold as a safe investment in uncertain financial times. While gold can be part of a good strategy in an overall investment portfolio, the decision to purchase gold should not be driven by fear tactics. Recent radio ads have been hinting that somehow your savings, CD, and IRA accounts could be seized by the government as a "bail-in" rather than a "bail-out" to troubled banking institutions. These fear based ads cite Cyprus as a real life example where bank depositors in Cyprus initially saw a tax on their deposits to cover the financial collapse in 2013 that was taking place there. These ads imply that the same tactic could take place here in the United States, thus placing depositors at risk of losing their savings. 

To begin with, any sales pitch that focuses on fear is a red flag from the start. Why not focus on gold as a good investment? Or is it? Today gold was selling for $1,170.90 per ounce. The high price in 2014 was in March when prices peaked at $1,370.50 per ounce. That is a 14.56% decrease in value. Gold prices reached a high of $1,889.70 per ounce in August 2011. Had an investor purchased $50,000 worth of gold in August 2011, that gold would today be worth $30,981, a 38.00% DECREASE in value in less than four years. Gold is best used as a long-term investment where holders can ride the significant highs and lows of gold pricing over time. Gold at best should be just part of an overall investment portfolio that utilizes multiple investment options.

The notion that deposits could and would be seized by the United States government as part of a bail-out plan for failing banks or the government itself is just plain ridiculous. Cyprus as a country could not print its own money. The United States does and has been doing so since the country's inception. Depositors in the United States have federally insured deposits up to $250,000. What type of civil unrest would occur if insured deposits were suddenly seized by the very government providing the deposit insurance in the first place?  This doomsday scenario simply would not take place. If it did, the value of gold certainly would not be tied to the dollar. 

Advertising is designed to motivate action. Fear in advertising is one tool utilized to obtain that consumer sale. These fear based gold buying ads frankly border on being illegal as they attempt to incite panic with depositors of financial institutions within the United States. Deposits in federally insured financial institutions in the United States remain safe which is also why the savings rates are usually low. Safety and yield usually go hand in hand. Better to keep your principal balance and earn a small amount than to lose 38% of your investment, in my humble opinion. 

No comments: