|Credit: Stuart Miles|
- Is gold an investment?
- Below, please find a chart showing the history of the price of gold per ounce from 1970 to the present. Warren Buffett said, “If you buy an ounce of gold today and you hold it a hundred years, you can go to it every day and you could coo to it and fondle it, and a hundred years from now, you’ll have one ounce of gold and it won’t have done anything for you in between. You buy 100 acres of farmland and it will produce for you every year. You can buy more farmland, and all kinds of things, and you still have 100 acres of farmland at the end of 100 years… So a decent productive asset will kill an unproductive asset.” I think Mr. Buffett has a point, and if I was a gold investor, I’d probably be looking at this historical price chart pretty closely. Also, please understand that investing in gold mining companies and gold ETFs (Exchange Traded Funds) is not the same thing as investing in gold. An investment in a gold mining company would be influenced by the company’s management and performance itself (versus just gold, the asset), and an investment in a gold ETF does not allow you to take possession of the actual gold if you are also viewing your investment as some sort of insurance against the U.S. Dollar.
- Is gold insurance?
- If you’re buying gold for insurance against some doomsday scenario you’re worried about, then shouldn’t it be inversely correlated with the market? In English, don’t you want gold to go down when the market goes up so that theoretically, gold will go way up when the market goes way down? Take a look at the chart below!
Source: Yahoo! Finance
- Is gold currency?
- No, not anymore. It’s been a medium of exchange in the past, and it can still be a valuable asset, but unless you’re planning to barter, it’s not really a currency. Say you actually bought a gold brick. Where would you keep it? Who would you tell that you had a gold brick? If a catastrophic economic scenario actually played out and you needed to use your gold brick to buy bread or safe transportation, what are you going to do – scrape off a piece? Look, I know I’m poking fun at hoarding away gold, but I really feel that outside of collecting a few Canadian Maple Leaves in a top dresser drawer, if we ever get to a point where we need to use gold as currency, we will probably have bigger fish to fry! Just mute the guy on television for a second and think - if all that you owned became worthless, would the amount of gold you have, or sometimes think about acquiring, actually be enough to get the job done?
Look, if owning several thousand dollars worth of gold helps you sleep better (and you can afford it), go for it. Just know that’s the same advice I’d give a financially independent client who “needs” a fancy golf cart, a rare painting, or an exotic cat to feel better as well.
If you want to sell me some gold, I’m not buying. If you want to give me some gold, I’ll gladly take it, but I’m going to sell it. I have my wedding band, and that’s all the gold I think I’ll ever need. Many people may try to convince you otherwise, but when you get down to it, I personally view gold as a pretty metal and an unpredictable hedging investment instrument. If gold really is as grand as some talking heads try to make it, wouldn’t things have worked out a little better for King Midas, Auric Goldfinger, and Machu Picchu?