USA Today's personal-finance advice columnist Matt Krantz, in his latest column, got asked by a lucky reader about this choice: having received $10,000, the reader was wondering if it were better to pay down debt or buy gold. Krantz recommended the prudent course: paying off the debt. Although gold had compounded faster than most credit cards' rates over the last few years, it's still a gamble.
I myself was sorely tempted to buy some gold on a credit card back on January 29th when gold was below $1,315. Yep, I was at APMEX and pulled up the online order form for fifty 1/20 oz. Maple Leafs, although I was wavering between those and two 100-oz bars of silver for about $28/oz.
Granted that my decision to refrain (for financial-prudence reasons) proved to be less than economically rational in retrospect, but the return I would have made would have been eaten into by the interest clock running. Had I gone through with it, I would have sold some to reduce the debt I was carrying.
Trouble is, my timing would have been quite fortuitous. At the time, I did run the risk of having to shoulder paying the minimum payment and watching my stash go nowhere. Had I done so at the begining of December in '09, I would have been in a loss position - not counting credit-card interest - until late spring of '10. If anyone's tempted to undertake what I shied away from, timing matters. Last week was the time to sell enough to pay back (most of) the debt. The trouble is, selling when the market's hot is a completely different skill from buying when there's gloom and panic. From my experience, selling is harder to learn than buying.
So, in the end, prudence might be the best choice even if profits are foregone. Even when an investment is going up, timing and banking the profit are still skills that take time and effort to master. Paying off debt, or refraining to run up debt, aren't.