Jeff Clark, Senior Precious Metals Analyst, GoldSilver
Is gold a good investment? Why should you own it?
It’s natural and even prudent for an investor to wonder if a particular asset is a good investment or not. That’s especially true for gold, since it’s an inert metal and doesn’t earn any interest.
But the reasons for owning physical gold go beyond the possibility of its price rising. Gold bullion offers distinct advantages that simply can’t be found in almost any other investment. These advantages give you power as an investor. And yes, one of these reasons is because the price is poised to rise significantly (see reason #10).
Let’s first dispel with a common misconception about gold: it doesn’t pay interest or dividends so is not a good investment. But gold isn’t supposed to do that, and that’s a GOOD thing…
Owning gold means you don’t have to worry about earnings reports, changes in dividend and interest payments, or unhappy shareholders. It’s one of few assets where those factors are not present, freeing it up to do what it has done for thousands of years: store value for you.
An ounce of gold can buy a nice suit today—just like it could hundreds of years ago, and even thousands of years ago (a Roman toga). There are times when it will buy or less, but it has always come back to this equilibrium. This track record is unmatched by any other investment.
This multi-millennia history makes gold a unique investment in the modern world. The fact that it acts as a store of value is just as strong today as it was when Kings and pirates used to hoard it. Central banks buy gold for their Reserves today, as well as millions of investors. And since gold is virtually indestructible, it will outlast you… and your heirs.
And this highlights a critical point: to capture all these advantages, you must buy physical gold. Not paper forms like ETFs or futures contracts, but gold bullion, like coins and bars. Do that and the following advantages are yours.
Here the top 11 reasons why every investor should buy some gold bullion, with emphasis on investment implications…
Gold is not used as a currency today, but its role as money makes it superior to any currency. In fact, gold has been money longer than any currency in history. Gold has been a store of value for at least 3,000 years, while one of the longest currencies in history, the British Pound, is about 1,200 years old.
One of the crucial promises of money is that it serve as a long-term store of value. Gold fulfills this promise better than any fiat currency. Look how much purchasing power all major government currencies have lost compared to gold.
This shows that since 1900, physical gold has been the best long-term store of value. There were periods where in the short-term currencies grew in value more than gold, but over the long term this chart demonstrates exactly why the rich have always held it.
Gold’s price fluctuates, but its value is timeless. Consider how gold will preserve your purchasing power over the next, say, 5 years compared to your currency. All paper currencies, by their very nature, lose value over time. The dollars you save in your bank or brokerage account will continue to seep purchasing power.
This benefit has a practical application:
Investment Implication: Physical gold is one of the most ideal forms for long-term wealth preservation. It is also ideal for your heirs since it will outlast any currency they may use in the future.
If you buy physical gold, you can hold it in your hand, something you can’t do with most any other investment. Real gold can’t be destroyed by fire, water, or even time. And unlike other commodities, gold doesn’t need feeding, fertilizer, or maintenance.
Producing vs. Storing: The Misunderstanding of Gold
Those that criticize gold because it doesn’t produce income misunderstand its role in a portfolio. It isn’t gold’s job to produce income; its function is as money and a store of value. This is also why gold shouldn’t be viewed as just another commodity; gold don’t get “used up” like oil or corn, since almost all the gold ever dug up is still in existence.
There’s another advantage to gold being a tangible asset: it can’t be hacked or erased. Unlike brokerage accounts, bank accounts, and payment services like credit cards, gold bullion is out of reach from hackers and identity thieves.
In today’s world, it’s probably a good idea to have some of your wealth outside of digital form. If the internet isn’t available or your online world comes crashing down, those gold Eagles you possess aren’t affected. In fact, in that scenario, they could be a lifesaver.
Investment Implication: Physical gold is not subject to the risks that come with paper assets. It can’t be hacked or erased.
If you hold gold bullion, no paper contract is needed to make it whole. No middleman or other party is necessary to fulfill a contractual obligation. That’s because gold is the only financial asset that is not simultaneously some other entity’s liability.
This is important because gold will be the last man standing when bubbles pop or a crisis hits. That’s a powerful tool to have in your portfolio when things start to go wrong in your country or economy.
It also means gold won’t go to zero. It’s never happened in its 3,000+ year history. That’s a powerful feature, especially if you asked former shareholders of companies like Bear Stearns, Enron, or Lehman Brothers.
Gold will always have value. You can always sell it if you need currency.
Investment Implication: Physical gold cannot go bankrupt or broke. Gold bullion will never default on promises or obligations.
How many assets can you say that about in today’s world? If you want a little privacy, physical gold is one of the few assets that can provide it.
Note that you must still report any gain on your income taxes. Here are the basic guidelines on reporting and paying taxes on gold.
Gold is one of very few investments that can be anonymous. If you choose, no one has to know you own it. Virtually any other investment you may make does not have this benefit.
Investment Implication: If you want a private or confidential form of wealth, gold is one of few assets that can offer this.
Gold is also ideal because it is easy to sell, and can be carried in your pocket anywhere you go.
Gold is highly liquid. Virtually any bullion dealer in the world will recognize a gold Eagle and buy it from you. You can sell it to your local coin shop, a private party, or an online dealer. It can always be sold for cash or traded for goods.
The process is frequently quicker than selling a stock in your brokerage account—it usually takes 3 business days for settlement before cash can be transferred to your bank account or a check mailed. And other collectibles, like artwork, could take longer to sell, have a small customer base, and would likely entail a big commission.
This liquidity means you can take gold with you literally anywhere in the world. And if you’re uncomfortable crossing a border with it, you can buy gold in its ”have gold/will travel” form.
Investment Implication: Gold is easily convertible to cash, and can go with you anywhere.
One question that comes up with physical gold is the cost of storing it. But while professional storage does come with a fee, vaulting charges are typically low. And compare a small storage bill to the costs and headaches of, say, real estate. Just lock your gold away until you need it—no late renter payments, calls to fix a broken toilet, or complicated tax issues.
Of course you can always hide or secure gold in your home, too. Here’s some ideas from our silver storage article, which also apply to gold.
Keep in mind that gold is value dense. That means it packs a lot of value in a small space. You can hold $50,000 of gold in the palm of your hand—or store it in a small space in your home. And at any price above $1,200/ounce, you can store more value in a safe deposit box with gold than stacks of dollar bills.
Investment Implication: Gold storage is low maintenance, low-cost, and requires little storage space.
Can you spot a real diamond? Can you look at two paintings and tell which is the fake Van Gogh? What stamps, baseball cards, and antique furniture pieces are more valuable than others?
Gold bullion requires none of this. No special skills, training, or equipment needed.
You can buy rare gold coins, but this is the world of the collector, which most investors should avoid. You’re not speculating on a numismatic coin someday fetching a higher premium than what you paid; you’re investing in gold bullion to protect you against crisis and shield you from a loss in purchasing power. No rare coins needed.
Buying gold bullion is relatively straightforward. If you’re not sure what to buy, start with this easy guide.
Investment Implication: No special skills or expertise is needed to buy physical gold.
You don’t have to be a conspiracy nut to understand that governments sometimes overreach. They can freeze bank accounts, garnish wages, and even confiscate funds. Talk to people who were victims of these actions and they’ll tell you they had no warning.
In an economic or financial crisis, these actions increase. The government desperately needs revenue, and they tend to be more aggressive in their enforcement. Or they simply pass news laws and regulations to suit their needs at the time. It’s happened with virtually every government in history, and it’ll happen again, especially in a crisis situation.
There are precious few ways to protect against such actions. But one of those ways is by holding physical gold offshore.
Diversifying internationally sounds complicated, but storing some physical gold outside your home jurisdiction today is not difficult. It’s as easy as opening a bank or brokerage account. And by doing so, you buy yourself some time in a worst case scenario. Even if you never have to use this “plan B” money, it’s like an insurance policy against aggressive or unfair political actions. You could even someday use the proceeds of any sales to invest in other options that may not be available in your home country.
It’s a good idea to keep some of your wealth outside the banking system, and also outside your political jurisdiction. Professional vault storage offers you a viable and straightforward way to do just that. It’s not a panacea, but it can put a layer between you and heavy-handed bureaucratic actions. The catch is, these preparations must be put in place before anything happens.
Investment Implication: International gold storage is simple to implement and can provide financial flexibility and investment options outside your home country.
Want to hedge the stocks you own? Do you sometimes worry the stock market might crash?
Gold may have an answer for you. This chart shows gold’s correlation to other common asset classes since 1975. The zero line means gold does the opposite of that investment half of the time. If it’s below zero gold moves in the opposite direction of that investment more often than with it (and vice versa if above zero).
You can see that on average, when the stock market declines, gold has historically risen more than fallen.
This inverse correlation holds true even when the stock market has crashed. Check out how gold performed in the 8 biggest stock market declines over the past 4 decades.
Sep 21, 1976 - Mar 6, 1978
Nov 28, 1980 - Aug 12, 1982
Aug 25, 1987 - Dec 4, 1987
Jul 16, 1990 - Oct 11, 1990
Jul 17, 1998 - Aug 31, 1998
Mar 27, 2000 - Oct 9, 2002
Oct 9, 2007 - Mar 9, 2009
May 10, 2011 - Oct 3, 2011
You can see that in most cases, gold rose when the S&P crashed (gold’s only significant selloff, -46% in the early 1980s, occurred just after its biggest bull market in modern history.)
It’s true the gold price initially fell in the shock of the 2008 financial crisis. But while the S&P continued to decline, gold sharply rebounded and ended the year up 5.5%. Over the total 18-month stock market selloff, gold rose over 25%. Gold doesn’t automatically rise with every downtick in the stock market, but history shows it is sought as a safe haven in big stock market declines.
This insight has a practical application:
Investment Implication: If you want an asset that will rise when most financial assets fall, gold is likely to do that more often than not. The more common stocks you own, the more gold you need.
One of gold’s strongest advantages is that it can protect your investments—even your standard of living—during periods of economic, monetary, or geopolitical crisis. And depending on the nature of the crisis, gold can move from a defensive tool to an offensive profit machine.
Check out how the gold price has responded to various crises.
When a crisis strikes and drives fear higher—whether it’s from investors worried about the stock market or a full-blown event affecting the livelihood of all citizens—gold is a natural safe haven. Fear is what drives people in a crisis, so the greater the worry the more gold is sought and the higher its price goes.
A lot could be written about the various crises that are possible today, but the point is that the level of risk in our economic, fiscal, and monetary systems is elevated. There are so many risks, in fact, that the gold price is likely to make new all-time highs in response to some of these crises playing out.
Here’s the kind of potential gold has… the second half of the 1970s was a troubling period—it included interest rates over 15%, high unemployment, a 14% inflation rate, an energy crisis including an oil embargo, the Soviet invasion of Afghanistan, cold war tensions, and recessions at both the beginning and end of that period. How did gold respond to all this? From its low in August 1976 to its January 1980 high, gold rose a whopping 721%!
Gold is usually about defense, but in addition to its staying power, gold offers massive profit potential given the precarious nature of our economic, financial, and monetary systems today. The core reason for this is due to the growing supply of fiat currencies and mounting debts around the world. This tells us that the fallout could be much worse than usual—and the greater the fallout, the higher gold will go.
Investment Implication: In a world of elevated risks on multiple fronts, gold offers lower risk, greater safety, and bigger upside than any other investment.
There are other precious metals, meaning they occur rare in the earth’s crust. But over 90% of the use for platinum and palladium is industrial, and about half for silver, meaning economic health will impact their demand.
Gold, in contrast, is first and foremost a monetary metal. And that makes a big difference when it comes to maintaining its value during periods of crisis…
First, look how each precious metal has historically performed during recessions.
Contrast those performances with gold:
Gold has clearly performed better than the other precious metals during economic downturns. This is what makes it so valuable to own during recessions.
And check out how each precious metal has performed during stock market crashes… red means it performed worse than the S&P 500, yellow means it fell but performed better than the S&P, and green means it rose.
Only gold has typically risen during big stock market declines (and I’ll point out the 46% crash in the early 1980s was just after its biggest bull run in history). The other precious metals have not performed well during stock market selloffs.
Cryptocurrencies including Bitcoin have a short history and we thus have limited knowledge on how they’ll perform during recessions and stock market crashes.
And that’s the point with gold: its history is proven. Cryptos may or may not do well in a crisis, but history says gold will. I’ll point out that we had a huge spike in volume from crypto winners diversifying into gold when the crypto market soared.
|1||Gold is money||Physical gold is one of the best forms of long-term wealth protection. It is ideal for your heirs since it will outlast any currency they may use in the future.|
|2 ||Gold is a tangible asset ||Physical gold is not subject to the risks that come with paper assets. It can’t be hacked or erased.|
|3 ||Gold has no counterparty risk ||Physical gold cannot go bankrupt or broke. Gold bullion will never default on promises or obligations.|
|4 ||Gold can be private and confidential||If you want a private or confidential form of wealth, gold is one of few assets that can offer anonymity.|
|5 ||Gold is liquid and portable||Gold is easily convertible to cash, and can go with you anywhere.|
|6 ||Easy to store, low carrying costs ||Gold storage is low maintenance, low-cost, and requires little space.|
|7 ||Gold requires no specialized knowledge ||No special skills or expertise is needed to buy physical gold.|
|8 ||Gold can protect against government intrusion ||International gold storage is simple to implement and can provide both financial flexibility and investment options outside your home country.|
|9 ||Gold hedges the stock market ||If you want an asset that will rise when most other assets fall, gold is likely to do that more often than not. The more common stocks you own, the more gold you need. |
|10 ||Gold protects against crisis ||In a world of elevated risks on multiple fronts, gold offers lower risk, greater safety, and bigger upside than any other investment. |
|11||Stronger than other PMs and Cryptos||Silver, platinum and palladium have historically not performed well during recessions and stock market crashes; gold has. Cryptos have a very limited history, while gold has a long and proven history during crisis.|