All that glimmers is not smart

College Mall has never been a place I associate with wise financial decisions, but if the last time I was there is any indication, the place has taken a turn for the worse.

It isn’t necessarily anything to do with the stores inside, but rather its recent spat of “Cash for Gold” events, a setup where people bring their gold jewelry, watches and such to a merchant who will make them an offer and if it’s accepted, pay them in cash.

And while it would be wrong of me to complain that such a deal is unfair (after all, no one is making these people sell their gold), it would be just plain foolish to assume that these people know much about what they’re doing.

Leaving aside for a moment the obvious problems with lack of information you run into when selling precious metals to some guy in a mall, and how you’ll almost definitely get some low-ball offer that makes mention to “transaction fees” and “impurity concerns,” most people don’t understand that the reason gold is so popular now is because it will be much more popular later.

That’s why so many cash-for-gold schemes are cropping up. Many gold-buying companies believe that gold will be much more valuable later, and want to buy as much as possible at what they see as today’s low prices, expecting a huge payoff in the future.

That payoff will either come as a protection against a sinking dollar, which is often associated with a high deficit, or merely because people think the dollar will sink and will be willing to pay a lot to buy it at the wrong time. 

Of course, things could also go the other way – the dollar could get stronger and gold would decrease in value (which isn’t likely).

But no matter what, someone is going to get stuck with a huge loss. It’s either that gold-buying companies are being tricked millions of separate times by individuals with an inexplicably better ability to read the market than companies full of finance experts, or these individuals are getting hosed.

History may often repeat itself, but to see the return of rampant speculation on an individual basis just as the recession ends is disappointing indeed.

Precious metals are prone to the same sort of fluctuations as any other asset, be it mortgage-backed securities, shares of Citigroup or Beanie Babies. It might be considered a “stable asset,” but that doesn’t mean it’s smart.

In times of uncertainty, many people place a premium on feelings of safety, but are often too hasty in buying it.

Most people who invest on what’s trendy are the ones who find out about the party just as the food is gone and the bill is arriving.

The only guaranteed money in speculation is for the middlemen who facilitate the parting of fools and their money – or gold, as they case may be.