Tickers in this Article: ABX, MCD, GLD, NEM
Since 2008, when the U.S. financial crisis exploded, the price of gold has continued to climb higher in response to concerns over the monetary system. As Europe's financial crisis reaching its zenith, gold has been the recent haven for many investors. The history of gold makes the shiny yellow the de facto asset to own during periods of monetary disorder. But its allure could be misguided at this point.

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Investing to Make Money
Despite gold's status as a safe haven, the goal for any investor is to realize a profit from a trade. More so, opportunity should never be ignored. Any investment should be made because it offers the most attractive return available as part of a intelligently diversified portfolio. What I often see is people buying gold for safety and not for investment purposes. Gold produces no cash flow, so its value is purely determined by the desire to own it. To successfully invest for the long-term, one has to buy businesses at prices below the sum value of future cash flows. Without cash flows, one can never determine whether or not gold is a good buy at any particular price. (For related reading, see The Gold Standard Revisited.)

Opportunity Cost
Year to date, SPDR Gold Shares ETF (NYSE:GLD) - the most common instrument for investors to directly own gold - is up about 14% - a very respectable return. But that return was purely based on continued fear over the global monetary system. To be sure, there is reason to be fearful today with what's occurring in Europe, and that makes for a strong argument to owning gold. But McDonald's (NYSE:MCD) is up around 29% this year thanks to increased cash flow generation by the business. Those cash flows also reward investors via a 3% dividend. GLD pays no dividend since it produces no cash flows.

Owning gold mining stocks also pose their own set of risks. Despite the price of gold up nearly 30% in 2011, shares of Barrick Gold (NYSE:ABX) are down more than 5% this year. Clearly the market doesn't believe that a higher gold price will automatically translate into greater cash flows for gold miners. Gold mining involves political and other risks that can cause costs to rise, thereby squeezing profits. Newmont Mining (NYSE:NEM), the best performing name of the major gold miners, is up only less than 10% this year. And those gains assume an investor held the stock throughout all the volatility that it and other gold-related stocks experienced in 2011.

The Bottom Line
Investing is all about opportunity cost. Back when gold was trading at $500 and getting little attention, it was a more attractive time to think about getting in the gold market. Only after a price surge is gold getting extensive media hype. Investors should not forget that even during uncertain times, there are more attractive ways to invest than by betting on a commodity that trades on investor emotion.

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