If there’s one thing you can count on every time the economy suffers a downturn, it’s hearing a chorus of voices advocating investment in gold.  Gold is touted as a hedge against economic instability and an incomparably stable investment option.  Advocates of gold investment argue that precious metals offer a solid investment during tumultuous times.

You can count Dr. Steve Sjuggerudd as a member of the pro-gold chorus.  In a recent article in his online Daily Wealth newsletter, Sjuggerudd comes out strongly in favor of gold.

He argues that the price of gold is likely to increase dramatically over a short period.  He argues that gold is safe and that it won’t undergo the kind of ugly devaluations (and even governmental seizures) that can plague other options.

Sjuggerud maintains that owning physical gold is a great idea and he specifically argues in favor of purchasing 100 year-old gold coins.  According to Sjuggerud plain “bullion coins” (which are basically worth their melt value) are in short supply and that there are bargains to be had in the area of collectible gold coins.  He also sees a two-track way to prosper with old gold coins:

So I much prefer the rare gold coins… the 100-year-old ones in near mint condition. With bullion, you only make money if gold goes up. But with rare gold, you can make money two ways… if gold goes up and if the “collector’s premium” over melt value goes up.

His argument seems to be representative of a large group of analysts and observers who believe that gold coins are a good investment.

But is this advice you should be following?

There’s no doubt that there is value in gold coins.  It’s also true that investors have long used gold as a hedge and that it’s part of many well-diversified investment portfolios.  However, gold may not be all its cracked up to be by folks like Sjuggerud.  Consider these factors:

Exaggeration. Pro-gold arguments often begin with a very optimistic assessment of future values.  Sjuggerand begins by observing that gold is currently trading at $1,000 per ounce and hints that $5,000 per ounce gold may be on the horizon.  The only problem with that?  You won’t find many analysts who really predict a 500% increase in gold prices and as of the time of this post’s writing, gold is trading at $828 per ounce.

History. It’s true that gold hasn’t wildly dropped in value over the years.  It’s also true that gold tends to perform well during tough economic times.  When you look at the bigger picture, however, you’ll find that returns on gold have been wildly outpaced by stocks.  One source maintains that over 175 years, gold averaged an annual return of .06% while stocks averaged a 7% growth rate.  Gold, unlike a business, won’t file for Chapter 13, but the market seems to offer better returns historically.  If you want a slightly more in-depth analysis, check out this examination.

Transaction Costs. Sjuggerad and others advocating the purchase of physical gold often fail to mention the built-in transaction costs associated with gold ownership.  You can expect to pay at least a 5% premium on many gold purchases and you’ll have to deal with shipping and storage expenses.  You’ll also need to pay someone to appraise those old coins.

Regulatory Deficiency. If you’re playing the stock market, you know that there are a few referees in the game.  Buying and selling old coins, however, isn’t subject to the same kind of oversight and regulation.  There’s a greater degree of regulatory protection in other investment niches.  There’s a reason why we have the SEC and a series of other acronyms running around policing the markets–people will try to screw you if they can.  You don’t have a shield against that kind of predatory scamming when you’re dealing with gold coins.

There’s nothing wrong with gold or coins.  If you think we’re on the brink of a financial apocolypse and it makes you feel a little better to have some gold hidden somewhere, go for it.  If you love coins and numismatics and can find joy in coin collecting, feel free to pick up a few of those 100 year-old coins.  Who knows, you might even get lucky and pick one up that you can later sell at some profit.

If, on the other hand, you’re interested in maximizing the values of your investments, you probably don’t need to involve yourself in the coin collection business.  There are better ways to make more money.

I could be wrong.  We might be heading toward $5,000 gold.  Historical trends and tendencies could reverse themselves at any moment.  The world is a crazy place, after all.

When it comes to finances, though, it’s usually not a good idea to bet on crazy.  And it’s probably not a good idea to liquidate all of your assets to go after a bag of old gold coins.