Gold has already recovered most of its losses in 2012 but more importantly, looking at the chart you will quickly notice that the recent drop was merely a correction after it had shot up off its trend line in November. This is scarcely an odd thing. Granted, it hasn't recovered fully yet but I have no doubt it will shortly and then continue its growth. For the media it presented an exciting story, for people buying gold just because they heard it was going up it was drama, for the rest of the gold bulls it signaled a good buying opportunity.
When buying gold one must never forget the nature of the precious metal. It is not an investment in the traditional sense, it yields no dividend and produces no value. It is a means of saving, especially long-term, because of its unique characteristics, i.e. it cannot be counterfeited (printed), it is easy to store, easily divisible etc. Of course there is always money to be made in speculation but for the vast majority of us non-experts I would suggest buying into dips (such as this recent one) and holding onto it until you want to buy the thing you have been saving for.
Gold price in EUR, 1 year
Source: goldprice.org
Gold, denominated in EUR, has gone up by about 25% in the last year and roughly 170% in the past five years. That's pretty impressive, no? Of course it does not mean it will continue to go up under any circumstances, but given our current monetary and political system of massive public debt growth, bank bailouts and money printing, yes, I think it's the safe side of the trade.
Gold price in EUR, 5 year
Source: goldprice.org
I also made a comparison between gold and the DAX (an index of 30 German blue chip companies traded on the Frankfurt stock exchange) just for kicks. If you had put 1,000 EUR into gold 5 years ago, you would have had ca. 2,700 EUR today. Adjusted for inflation (the EUR17 CPI grew about 11.2% in the period) you now have 2,428 EUR. On the other hand, the DAX fell roughly 8% in the same period, which means that investing 1,000 EUR 5 years ago would have left you with 920 EUR today. Given a 3.5% dividend yield on your DAX stocks (holding your 1,000 EUR investment constant, which it wasn't), you made 175 EUR (but probably a bit less) in dividends, a combined sum of 1,095 EUR nominally. Adjusted for inflation you now have 985 EUR, not counting all the broker fees you had to pay for the privilege (yes, you had to pay commission for gold as well, but at least there you made a profit to pay it with).
DAX, 5 year
Source: bloomberg.com
This is not to say that stocks can't be a good investment. They absolutely can. At the right time and price, some stocks can be an excellent bargain. Also, corporate profits seem to be doing well so you are likely going to be better off in equities than fixed income investment vehicles such as bonds (esp. government bonds) with the official YoY inflation rate being in the 3% area. But again, for the vast majority of us non-experts, the stock market might prove to be just a bit too expensive of a playground.
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