All About Gold
All About Gold & Silver
Many potential investors find themselves asking at one point or another: "Why should I consider investing in gold and silver?"
The answer to this question is simple.
The following guide will walk you through the potential reasons to consider such an investment and will show you why smart investors already have an allocation in gold and silver.
To understand why a previous metals investment should be considered, it is important to understand the main benefits of ownership.
This asset class has been around a long, long time and is widely considered to be a reliable store of wealth and protector of value.
Not only that, but the yellow metal also provides investors with a solid return.
A recent study by J.P. Morgan Asset Management concluded that gold is the winner when it comes to annual returns compared to a range of other asset classes.
Most of these markets it beat by a significant margin.
The gold market has a large amount of loyal fans-this makes sense given its $100B + per day in trade-while it also has its haters.
One of gold's largest haters has to be Warren Buffet, who once referred to gold as a "pet rock."
Although Buffet and other haters do have some good points, primarily that gold produces no interest or dividend income, the yellow metal has stood the test of time.
Gold's lack of income is no different than that of many other asset classes such as fine art, real estate and more.
Given its lack of income and its many haters out there, it begs the question of why central banks look to buy and hold massive amounts of gold and why refiners are often unable to keep up with overall demand.
Perhaps the biggest draw to gold is its reputation as a store of value and protector of wealth.
Consider this: There is a very good reason the wealthy tend to stay wealthy.
It is because they have learned not only to make money but more importantly to hold onto the money they have earned.
If you think about generational wealth for a moment, isn't it amazing how this wealth can be passed down from generation to generation without taking a hit along the way from inflation, geopolitical conflicts or market crashes?
It is not some form of wizardry that allows this to happen, it is hard assets like gold that do.
Global central banks are the most powerful financial institutions on the planet, and they too also pour a massive amount of their capital into physical gold bullion.
Central banks know and understand the power that gold provides, allowing them to borrow funds on the open market while establishing credibility for their nations and currencies.
They understand that gold bullion can help them remain stable in an unstable world, and that the metal may help them ward off losses due to rising prices or market declines.
One of the primary reasons for gold's abilities is the fact that it is of finite supply.
Unlike fiat money, central banks cannot simply decide to create more currency out of thin air.
In fact, there is no way for them to create more gold.
As a commodity of limited supply, once the planet's stores run out, there is no more gold.
That could lead to drastically higher gold prices in the years and decades ahead.
If you had placed a crisp $100 bill in a box in 1970 and placed a $100 gold coin in box that same year, what do you think would be their purchasing power if you opened the boxes in 2021?
As you are likely to imagine, the $100 bill would buy far less goods and services compared to what it bought back in 1970.
The gold coin, on the other hand, would more or less buy the same amount of goods and services as it did 50 years ago.
This is due to the effects of inflation and the money printing that has taken place over that time.
The more money that is printed, the less valuable the currency becomes as supplies increase.
Gold can not only preserve purchasing power and protect portfolios from inflation, but it may also act as a key hedge against markets.
That is to say that the value of gold may hold true, while the value if financial markets is all over the place.
Gold can be purchased to hedge against declining stocks, for example.
When stocks are rising, the price of gold may remain sideways to slightly lower.
In the case of a stock market crash, however, the price of gold could skyrocket higher.
The stronger price of gold could then offset much or all of the losses seen as a result of falling equity markets.
The last major stock market crash occurred in 2007-2008 and saw the value of stocks cut in half.
At the same time, however, gold ran sharply higher reaching new all time highs in the process near $2000 per ounce.
Gold may be getting ready to do its job once again, as increasing talk of the next major market meltdown seems to be on the rise.
With financial advisors recommending gold and nations stocking up on the metal, the time may be quickly approaching when gold races to new all-time highs as stock markets falter.
The approximate 10 year boom/bust cycle would seemingly indicate that the next major market bust could be overdue and that now is the time to get prepared.
Is Gold A Smart Investment?
The question of whether gold is or is not a smart investment has been asked for decades.
With most financial advisors suggesting an allocation in gold of 3-10% and some even recommending as much as 50% in gold, it seems that the metal does in fact play a vital role in financial health and tat having an allocation in gold bullion is very smart.
Investing in gold bullion can make a lot less sense, however, for some investors.
An investor with little to no capital to work with may not need gold as they have nothing they really need to hedge or protect.
In such a case, they may just be looking for asset appreciation.
Although gold does tend to rise consistently, having averaged a 9% annual gain for some 45 years now, it does have the potential for a rapid and sharp rise during times of economic or geopolitical crisis.
There are alternative investments, however, that can perform much better when measured during the short-term.
Smaller investors may want to really consider any gold investments, while those with $25,000 or more need to strongly consider an allocation.
At this amount and above, gold really comes into its own and can provide significant benefits.
Given the long-term nature of bullion investments, buying gold in a gold IRA can make sense.
A gold IRA offers protection for the investor from fake metals and other issues and can be a great help towards the biggest savings goal for many: retirement.
Speaking of safety, is gold a safe investment?
What are the risks associated with buying gold?
Gold ownership has several risks that must be considered before buying.
Because it is a physical asset, the risk of theft is always present.
Movies such as the Italian Job have done a great job highlighting the risks of owning gold bars or coins.
Physical gold can also be easily melted down and refabricated into a new bar with no identifying markets on it or buried for long periods of time.
The bottom line is that if gold is stolen, it is gone.
An adequately insured home safe or a commercial vault can help prevent theft and provide you peace of mind when away.
In these cases, there is little if any risk of your gold being stolen, and even it it was it is insured.
The other major concern about gold and theft is government confiscation.
In 1933, executive order 6102 called for the handover of more than 5 ounces of gold held by private citizens to the government.
The gold was confiscated to create more dollars, since the currency was based on gold at that time.
The law likely had little observance, however, and there are no accurate figures available today as to how much was raised during that time.
Current federal laws still allow the government to confiscate gold, although there are far lower hanging fruits the government could go after and their desire for citizens' gold is likely to be little, if any.
The dollar is no longer pegged to a gold standard, and the lack of this relationship would make it more likely for the government to confiscate additional capital through the push of a button or adding additional zeroes to balances.
Currency, unlike gold, can be created out of thin air with nothing backing up its value except the promise of the government creating it.
Another major risk for gold investors is the loss of value. if the price of gold sees a significant decline after you have purchased it, your gold holdings will show a loss on paper.
The average 9% annual gain gold has seen over nearly the last five centuries is subject to volatility and market changes.
During the trading day, gold can exhibit substantial volatility, bouncing higher, moving lower and sometimes trading sideways.
Short-term traders may look to capitalize on these intra-day price movements.
For the long-term investor, however, these movements are nothing more than market noise.
The long-term investor must be able to see the forest through the trees and refrain from getting upset by daily movements in the price of gold.
If you are still asking yourself if gold os wide or not, perhaps you ought to consider history.
Past performance does not equal future results, however, gold's long and reliable history can provide some clues about its potential going forward.
Can Investing In Gold Be Profitable?
Investors, whether long or short-term, also want to know if their investments carry the chance for profit.
Given gold's history and reliability, the metal is not only used to store and protect value.
With its short-term volatility and fluctuations, the yellow metal may also make some rich.
If an investor were able to time the market, for example, and only bought gold around the weekly or monthly lows and then sold it around the weekly or monthly highs, they have the potential to earn grain amounts.
The investor could also do the opposite, selling near the highs and buying back near the lows, locking in profits this way as well.
An investor can even begin an arbitrage scheme, in which he or she buys gold at a lower price and immediately sells it somewhere else for a higher price.
Although this method may not make a ton on a per-deal basis, it is quite scalable and can make one rich if done correctly with some size.
Compared To Cash Or Stock
Many potential investors find themselves asking whether gold is better than cash or stock shares.
Cash is a great tool for small, everyday purchases.
You likely would not run to the gas station for a pack of gum and whip out a gold coin to pay for it.
The problem with cash, however, is that it is always losing value.
Inflation erodes the purchasing power of cash over time, and what $100 bought yesterday it will not buy tomorrow.
Shares are a very different comparison and both shares and gold belong in a diversified portfolio.
Stock does provide excellent return potential while allowing holders to also earn income of the company pay dividends.
Like other investment products, however, those returns can be eroded through inflation over time.
That makes holding an asset like gold extremely important.
Who Is Buying Gold?
As previously mentioned, global central banks are massive buyers and holders of bullion.
In addition to these institutions, the mega-rich are also actively adding physical gold to their holdings currently, perhaps as a way to prepare for the next major market crash which could come at any time.
If the most powerful financial institutions on the planet see good reason to buy and hold gold, maybe you should as well.