With the instability of the market and thevolatility of real estate, physician-investorsmay be scrambling to allocatetheir hard-earned assets. Gold will be anexcellent investment over the next several years, alleviatingmany of the problems affecting our economyas the value of fiat money or paper currency falls.
Nuggets of History
Gold suffered a vicious secular bear market afterpeaking at $850 per ounce in 1980, but bottomedout at $252 in 1999. By the end of 2005, gold haddoubled against the dollar. Let's compare the Dow tothe price of gold, incorporating gold's dollar value.Until 1971, gold was fixed at $35 per ounce and theDow was at approximately 1000, resulting in aDow-to-gold ratio of approximately 30:1.
Then the dollar was allowed to float. With the terribleinflation of the 1970s, gold exploded and financialassets experienced the second-worst bear marketof the century. By 1980, gold was dear and financialassets were cheap. The Dow was at 800 and goldcost $800 per ounce, a ratio of 1:1.
For the next 2 decades, gold sunk and the stockmarket exploded. By 2000, financial assets wereexpensive and gold was a bargain. The Dow was upto 11,000 and gold was down to around $300, a ratioof 37:1. In today's market, with a 20:1 ratio of theDow in the 10,000 range and gold at approximately$500 per ounce, I believe gold is still a great bargain.
Gold Investing Options
Although nobody really knows when the price ofgold will increase or by how much, it is my belief thatthe Dow-to-gold ratio will drop to 3:1 before the endof this bull market. It will then be time to take profitsin gold and buy other financial assets. Physician-investorscan participate in this bull market by investingin a no-load gold or precious metals mutual fund.Be sure to avoid any fund with a load.
Physician-investors can purchase gold in the form ofan exchange-traded fund (ETF), a typically low-cost,index-tracking fund that trades like a stock.StreetTRACKS Gold Shares (NYSE: GLD) is a gold-bullion-based ETF that tracks the actual commodity.Each share represents 0.1 ounce of gold bullion aspriced by the London Bullion Market Association. Visitwww.streettracksgoldshares.com for more information.
Another viable option is to purchase shares ofgold mining companies. These are leveraged to theprice of gold and usually increase and decrease fasterthan the change in the price of gold. I would recommendthis option only for a very sophisticated andrisk-tolerant investor.
In addition, gold bullion coins, which are valued byweight, can be purchased in four denominations: 1,0.50, 0.25, and 0.10 ounce. US American Eagle BullionCoins are not available directly from the US Mint butonly through authorized dealers. For more informationand a list of reputable dealers, visit www.usmint.gov.
I remind you that your resolve will be tested, becauseno investment goes straight up or straight down. Also,remember that any investment based solely on someoneelse's recommendation, a problem that too oftenplagues physicians, would be terribly foolish. Rather, Ihope that you will be motivated to study and makeyour own investment decisions.
, graduated from the University of
Chicago, Ptizker School of Medicine, and completed his medical
internship and residency at the Massachusetts General Hospital.
He retired last year after 23 years of practice with the Missouri
Cardiovascular Specialists in Columbia, Mo. He authored The
Physician's Guide to Investing, A Practical Approach to Building Wealth (Humana
Press; 2005). This book can be purchased at www.humanapress.com. Many of
the themes for this article are taken from the work of James Turk, who writes for
the Freemarket Gold & Money Report.
Robert M. Doroghazi, MD