Wednesday again so that means a blog post. Let’s talk about gold for this post. Now gold is a commodity that many financial experts will tell you is a great hedge against a potential downturn in the economy. Let me be upfront about something here first. I am a finance professional. I have been working in the finance industry for 30 years now. When I post about finance, investing, commodities, money etc. it is my opinion only. I am not giving you financial advice, what you take from this post is up to you.
So back to gold…. Is it a hedge? Well yes it can be. Like any other investment the key is the buy point and the sell point. Let’s do a little quick math. So based on this website https://goldprice.org/gold-price-history.html 10 years ago (Nov 2023) gold was trading at $1273.50 (U.S.) and ounce. 10 years later it is now trading for $1891.20, a 33% increase. That isn’t too bad, now keep in mind this is a straight net calculation. Meaning we are not accounting for inflation, fee’s nothing like that. Simply I bought at X I sell at Y I get Z.
33% isn’t a bad return but we have a few issues here that are not entirely represented in the % return. The main issue is we didn’t receive interest or dividends on the assets. This is one thing many finance professionals don’t tell you. When you buy a commodity or say a collectible (think famous painting) the only return you get is appreciation. Now there is a counter argument here and that is “yes but I have a tangible asset that I can use to obtain goods and services.”
Well, this might be true. For example, someone who puts in a driveway to your home you might be able to trade them a bar of gold for that service. In reality? This doesn’t happen often but that is the counter argument to not have dividends and interest you have a tangible item. Now, if the economy collapses etc. and you have a bunch of gold do you think you will be able to drive to Walmart and trade in your gold bars for food?
You’re better off investing in ammunition and firearms if that happens but the point here is Gold is just a place to hold cash that you want to protect from the volatility of equity markets. The only benefit here is a long-term play and the notion you have a tangible asset. I’ve moved all of the money I did have in gold and precious metals out and taken that money and bought tangible items I can enjoy that have value.
Antiques, collectibles, things of that nature are the same in principle as gold. Over time you hope the asset increases but you are not getting dividends or interest on the asset. However, you are getting something you can enjoy like a painting or an antique chair. Gold isn’t a horrible investment but it’s vastly overrated and often pushed as a “hedge” during hard economic times. I would encourage you to think critically about gold or any precious metals for that matter, the upside is extremely limited.
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