There are two schools of thought on investing in gold. Those who like the idea say that it is a hedge against inflation, a safe haven in a calamitous world and that it offers protection against a weakening dollar. The most famous advocate against investing in gold is Warren Buffett. His basic grievance is that gold does not create wealth. It just sits there. It will only increase in value if someone is willing to pay more than you did (and this generally occurs during periods of fear). Here’s his rather blunt assessment of gold: “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
You might wonder whether gold ever outperforms the stock market. The answer to this depends on when you make the comparison. For example, over the past 30 years, the market has outperformed gold. However, over the past 15 years the opposite is true. So, it depends.
Some advisors advocate owning some gold for diversification since the price of gold is not correlated to stocks or bonds. If you decide to invest in gold, there are a number of ways to do so. You can buy physical gold such as bars, coins and jewelry. You need to watch the markup costs, storage costs and insurance costs. You can buy a gold exchange-traded fund (ETF). This eliminates the negatives of physically owning and storing gold. Your ETF owns the gold and backs your investment with gold assets. There are risks such as a failure of the bank that holds the gold. You can also buy gold-mining stocks. These magnify the effect of gold spot-price changes. You can expect regular 20-30% increases and decreases in gold stock value. Other gold-investment vehicles include futures and mutual funds.
You can see that there are pros and cons to investing in gold and that caution is warranted. If you’d like to discuss gold investments more or have other financial questions you’d like to discuss, we’d be happy to talk with you in a no-charge, no-obligation initial meeting. Just visit our website or give us a call at 970.419.8212 to learn more.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.