Is gold irrelevant to the average investor?
I’m not sure I’d go that far, as we must consider all investment vehicles when looking at our portfolios. As we know, asset allocation is something to pay attention to, and it can make a big difference in our investment returns as we work to grow net worth.
That being said, I came across an interesting piece in the WSJ, which talked about how important gold should be in an investor’s portfolio. Or, more accurately, how unimportant it should be.
The idea here seems to be that gold is something that doesn’t necessarily serve as a great hedge vs. inflation, based on data analyzed. This despite this common perception many of us have of gold. Also, gold doesn’t throw off any cash flow. It’s an asset that goes up and down in value, with price appreciation being your money making opportunity. Overall, the notion is that gold can be volatile, not as much as an ultimate store of value as many people think, and potentially dangerous for a portfolio if it makes up too high of a percentage of it.
We have heard some words before that cast doubt on gold as a prime investment vehicle. Considering the words of Buffett on gold, as we discussed here before, it appears that one of the highest profile investors out there expressed less than enthusiastic commentary on gold versus other options.
I’ve posted before about investment bubbles and touched on the notion of whether or not gold was in one. Additionally, we previously talked about whether or not there was a silver bubble – as it turns out, there was. Metals, since they became en vogue a few years ago, haven’t performed all that well as investment vehicles.
Personally, I’m beginning to think that maybe a very small percentage of one’s portfolio could consist of gold, but really in the spirit of diversification more than anything else. I’m coming around lately to seeing that there is no special reason for a regular, individual investor to hold excessive positions in gold – or silver, for that matter. There are other places where can also park our money and to invest it. Perhaps gold is but one part of a diversified portfolio, if it’s one at all?
My Questions for You
What do you think of gold as an investment today?
Do you agree with the suggestion that gold is not an important or essential part of an investor’s portfolio?
Did you buy or sell any gold during the price run up a few years ago?
The above post was included in the Carnival of Personal Finance at NerdWallet
I sold some gold and bought physical silver, but I was able to get it way below spot price so I am still up. I think it is good to have some smaller quantities in your hand in case of an emergency. I have been interested lately in the permanent portfolio, which calls for 25% of your assets in gold. Buying physical metals, if done right, can be a nice way to go “off the books” with some of your money 🙂
I took the opportunity to clear out some old jewelry that was no longer wearable or wanted a couple years ago. I took it to a reputable jeweler, not one of those “Cash 4 Gold” places. As I recall I got around $400 for what was useless junk to me: broken chains, outdated styles, and stuff with bad memories attached to it. I thought that was a pretty good exchange!
I have no “investment quality” gold, but I do still have some very nice gold jewelry items that have cash value, including my old wedding ring and engagement ring with a one carat diamond. They’re hidden away at home since I have no need for a wedding ring now and I rarely wear jewelry anyway. I look at this as my precious metals “portfolio.” 😉
Linda – that’s not a bad deal! You got rid of items that you felt like you couldn’t wear and were junk, and got some cash. Cool. As for you “portfolio”, I like that thinking 🙂
Personally, I’ve never understood the appeal of gold, particularly owning the physical metal. When the financial system vaporizes–as many ‘gold bugs’ seem convinced is inevitable–am I going to be able to buy a quart of milk and a dozen eggs with a few shavings off my gold ingot? I guess I need someone to explain to me how this is going to work in the post-paper money world.
That said, I heard yesterday of a rumor on the European situation that Germany may demand gold in exchange for further contributions to specific bailouts of other countries. If that happens, I think gold’s credibility as a safe haven and investment would be ratcheted up considerably.
Kurt – gold being truly used as a currency in the modern world, where paper and coins seem to be fading themeselves, would be an interesting concept.
Gold has done well, but it has no intrinsic value. It makes me nervous. I have looked at precious metal basket ETFs, but never just gold on its own.
I did own a gold company stock before, and it did okay, but I am not sure how I feel about that industry.
Eric – with the “gold rush” a few years ago, that seemed like a time to ride the wave. Those quick money for gold type of operations seemed more prevalent then, which might have been the sign of a bubble/craze.
My problem with gold is the conversion of returns problem. If you buy physical gold, you have storage costs and insurance. If you do it offsite you have storage fees and insurance. If you go with paper gold, you really aren’t doing much else than investing in a single, diversified industry. Sure price appreciation looks good, but its actually more cost and less liquid than stocks.
This of course doesn’t mean that I wouldn’t like a free, five finger tour of fort knox.
draghkar – thanks for stopping by. That is a very good point about gold miners, as you’re investing in a business as opposed to the asset which only shows price appreciation and offers no cash flow. Also, interesting point about being a store of value in an era of negative interest rates. I hadn’t thought of it that way, but that makes sense, moreso if prices were stable and value truly stored. With volatility as it is, who knows? Maybe the negative interest rates would even outperform gold? Anyway, thanks for the comment.