Why Invest in Gold

  • Thread starter CraigHardy
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CraigHardy

CraigHardy

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  • #1
To gold bugs, gold is like real estate. There's never not a good time to buy. Ask any realtor if it's a good time to buy. "Of course it is! The markets are moving. Interest rates are down. There are many houses to choose from." Okay, is a good time to sell? "Of course it is! There are lots of buyers. There isn't much inventory..." You get the idea. Salespeople always tell you it's a great time to buy or sell. And oftentimes they're correct. People can make an argument for pretty much anything.

Is it a good time to buy gold? In my opinion, probably. Right now in August of 2020. Yes, gold has hit an all-time high of above $2060, but I think it will probably go higher. The dollar is weakening. Public sentiment is getting sketchy, and folks fear inflation after the Coronavirus. I understand that it can be a foolish endeavor to purchase an asset at its all-time high, but the issue we face is wondering how high it'll go. Wouldn't we have missed an extraordinary opportunity is the price of gold soon skyrockets to $10,000 per ounce? If that happened, today's price of around $2,000 won't seem so high after all. I can remember when people thought $300 was high. Joke's on them. I can also remember a few decades ago when I talked myself into waiting to get into the stock market. Boy, the joke was surely on me. The point is, there appears to be a lot of funny money out there and trust in the U.S. dollar is waning. People want to get into real assets and out of the dollar. That's understandable. After all, the Federal Reserve just lent the U.S. taxpayer about a bajillion dollars. Something's got to give.

I'm a proponent for holding some of your investment dollars in gold. Not a lot; perhaps maybe 5% or 10%. Some would argue less and some would argue more. If you've got $100,000 to invest, I don't see an issue with buying up $5,000 worth of bullion or that much in the GLD ETF. If I had only $5,000 to invest in gold, I'd most likely go with the ETF. It's just easier to deal with all around. If I had tons of money, I'd definitely go with the bullion.

Anyway, I thought I'd discuss some different reasons someone might want to invest in gold. There are quite a few, although some can be argued against. I'll try to offer my personal opinion where appropriate.

First off, gold has a very long history of holding its value. There is no disputing that. If someone owned gold 2,000 years ago, that gold is still worth something today. If someone owned gold before their country went into a hyper-inflationary tailspin, I'm pretty sure they'd be glad they spent on gold. Gold is very stable. It's the rest of the world that's volatile. The problem I have with gold in general is that I can't figure out why it's worth anything at all. To me, it seems like simple perception. Since people think it's worth something, therefor it must me. But what is it really worth? It doesn't do anything. It's not like a stock that pays dividends. It's not like land that can produce. Just because folks have always assumed gold has intrinsic value, it must, I guess. But still, my opinion notwithstanding, gold is worth something and it's stable versus all the world's fiat currencies.

The U.S. dollar weakens and it strengthens. Gold goes up and down in price in relation to that phenomenon. If you were to merely invest in gold for the investment and money making aspect, as you might when investing in foreign currencies, you stand to make some money. You also stand to lose money, so I wouldn't advise the regular Joe get into this type of thing.

It's common knowledge that gold is a hedge against inflation. When the value of a currency falls, gold stays the same, which seems like its value rises. Most, if not all, global fiat currencies have inflated themselves away. Gold is still here. If you're concerned about your nation's currency losing its value, you might want to consider buying to gold. Gold will always be here and lots of very wealthy people are buying it for a reason.

Even when there's deflation, the price of gold has the potential to rise. I don't believe this is due to any technical aspect, but more of a psychological one. Back in 2008, deflation reared its ugly head. At the same time, or perhaps because of, the price of gold skyrocketed. When investors get nervous about their nation's economic well-being, they scoop up gold to round out their portfolios. They feel safer that way.

Similar to the example I just gave above, people love to buy gold when there's geopolitical uncertainty. Gold is viewed as the currency of last resort. When investors are worried about their nation going belly up or some war breaking out, they look towards gold. It's a fine asset to hide in a secret location or to buy via ETF. People absolutely do not enjoy uncertainty and they'll do what it takes to become somewhat certain once again.

The production of gold isn't stable and because of that, it may be a wise decision to get your hands on some real life bullion today. In the early 2000s, gold mining saw some ebbs and flows. Its quantity in new metric tons waxed and waned. Because of the volatility of its mining and production, investors prefer to get their hands on it when they can. Imagine having a geopolitical crisis break out and having no gold to buy at any price? Imagine the price it would skyrocket to if you were able to find a seller? Crazy.

The demand for gold is increasing globally. Get yours while you can. Gold is very popular in India and people in China consider it and use it as savings. I saw a video a few years back where the guy who made the video described a situation when he sat outside of a "We Buy & Sell Gold" business. He saw two different types of people going in and out of the store. Buyers and sellers. He said that he witnessed many Indians and Chinese going into the store to buy and many Americans going into the store to sell. I thought about that for a minute. As Americans, we need to get smart and buy gold because everyone else may just get to it first. Think long term here. It's not about today's dollars. It's about tomorrow's.

And finally, gold generally has a negative correlation to stocks. If you've got a diversified portfolio, you probably want to have a portion of that portfolio in a gold ETF. It'll rise in value when the stocks fall and vice-versa. Remember, when setting up your asset allocation for a portfolio that'll be rebalanced through the years, you need to consider the correlation between those assets.

Are you aware of any other reasons someone might want to invest in gold? If so, please let me know below. Why do you, or would you want to, invest in gold? I'd love to know.
 
EmeraldHike

EmeraldHike

Active member
  • #2
I would love to invest in gold. I have been reading about this since 2008 when the price went up last time. I expected it to fall much more than it did in the years that followed, but while it did go down some, it didn't go down that far. I'm thinking the same thing will happen here. Unless this is the big one where they discard the U.S. dollar. Then it's anyone's guess.

Do you have any advice on putting gold into an investment portfolio? There are a few different options for buying gold. I just want the easiest one.
 
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