Is Buying Gold a Wise Investment?
First, let’s clear up one thing: Gold is not an investment.
By definition, investments are where you put your money in order to make more money. Not that gold can’t also do that (more on that in a second), but that’s not why most investors buy physical gold.
Gold has often been called an excellent speculation––meaning that gold has potential as a hedge against what might be called politically-cause distortions in the economic system. For instance, many analysts are predicting bad times ahead for both the dollar and the stock market. These events will be very bullish for gold. As your money loses its value to dollar devaluation, stock market tumbles, and rising inflation, gold maintains its value. This is why gold is considered Real Money and has been through the ages.
Traditionally, gold has been thought of more as a form of wealth insurance than as an investment. While many other assets have been given this role over the past several decades, such as shorter term U.S. debt, money markets, bank accounts (which are legally “loans to the bank”), and even so-called “blue-chip” stocks, the fact is that these assets are so overvalued relative to gold given that they no longer offer returns (or yields) that justify the risk that comes with owning them.
How smart is it to invest in gold? Well, unlike the stocks in your portfolio, we know––because history tells us so––that gold will still be around in 40 or 50 years––100% guaranteed.
Okay, so that’s gold as protection: How about gold as an investment or income stream? Just look at this: Since 2005 gold has outperformed the stock market not by 25% or 50%, but by 100%! And this was during two record setting bull stock markets! Let’s put it another way: According to the performance of the Dow Jones, $100,000 invested in the stock market would give you $172,000 today in 2015. But that same investment in gold would have brought you $272,000!
The Alternatives to Gold
What do you get by putting your money in the bank? Banks pay no interest and are arguably riskier than ever. Stocks are viewed as a better alternative to cash––which earns practically nothing in the bank––even though they often pay very small dividends. Government bonds also earn next to nothing unless you go way out in the yield curve. Still, these assets are used as if they were money; banks and even individuals are allowed to borrow aggressively against them which only has the effect of pushing their prices even higher.
Then there’s the fact that the money supply in the United States has been rising dramatically. Even though the Federal Reserve’s Quantitative Easing Program has exacerbated this profligate money printing problem, the fact remains that a rising money supply has been in effect for decades. The price of gold simply hasn’t caught up given the 20-year bear market in the 1980s and in the 1990s. Just considering the damages caused by inflation, your cash has lost 30% of its value since 1999. In that same time period the price of gold has risen 430%.
Are Gold Prices at Bottom?
As of the writing of this article, the price of gold is $1200 an ounce. According to The World Gold Council, the cost of mining gold, given all the expenses of digging and processing, taxes and interest payments, etc., it costs about $1,100 to $1,200 to mine an ounce of gold. This means at current prices, gold is at the bottom of its threshold. When gold drops to this level it is no longer possible to mine gold at a profit and production cuts back. This means as supply dwindles there is an excellent chance that prices will be going up again.
So, to ask the question “Is it smart to invest in gold right now?,” with gold prices where they are now there may not be a better or smarter time to buy than now.
Transferring a portion of your retirement savings to gold can help to protect your retirement from the highly fluctuating stock market. But before you do anything with your hard-earned money, make sure you do your homework and get the best information available. You can begin by downloading a FREE mini-course that will help answer many of your questions about gold IRA rules, gold investing and coins. Full of important money saving investment tips, this guide has helped to teach many of our clients to invest like experts. If you’d like to save precious time and possibly thousands of dollars, you need to read this today!
An investment portfolio that isn’t diversified could be leaving your retirement in danger. The clock on your money is ticking. Don’t wait to protect your assets.