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Gold at an all-time high—buy-sell-or wear it?

Nov 12, 2020 | Peter Alepra


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Gold continues to make headlines with its rollercoaster ride. Mixed information can cause confusion when considering it as a possible investment.

Gold laying on top of some paper charts

Gold continues to make headlines daily with its rollercoaster ride to new record highs.  With all of the mixed information and “expert” opinions, it is easy to become confused when considering it as a possible investment.  Given the current challenges the World and the United States face, I believe the possibility to see yet higher gold prices does exist.  The markets continue their volatile ways and seem to have rebounded in the face of the ongoing uncertainty created by the Pandemic.  During these uncertain times, gold has continued an upward climb.  But is it a good investment for your portfolio?

Of all the major asset classes, Gold has also been a standout lately.  Until the pandemic hit, Gold had no sustained move over the last 10 years. Since March 19th, Gold has risen over 30%, rising more than 10% in July alone. 

Now that gold has hit $2,000 an ounce in mid-August and backed off slightly, what does that mean for consumers? Gold is used in industrial products and mainstream consumer goods. With every new high, consumers will likely have to pay more for everything from engagement rings to crowns for their teeth.  With all of the global and political uncertainty, gold is often considered a “safe-haven” during these unsettling times.

The other side of the gold trade

Although gold is considered a “Crisis Hedge”, it is also viewed as an inflation hedge.  As of yet, government data overall has not reflected significant inflation.  Once the economy does catch gear, the Federal Reserve more than likely will pull money back out of the economy with the goal of alleviating inflationary pressures but has stated it will be an extended process.  Gold prices will likely pull back if this happens.  

Also, gold does not pay dividends or interest.  It is an asset you can own for extended periods of time and receive nothing in return.  Gold is a cyclical asset and investors typically depend on timing their purchases to capitalize on its price movements. Any investment strategy that relies heavily on timing is typically a challenging approach.  Also, Central banks hold huge amounts of gold bullion which they occasionally threaten to sell from time to time, which of course could weaken the price.  

It is important that investors look at their portfolios historically.  Used correctly, gold and gold-related investments can be highly effective components of a properly diversified investment portfolio.  So the question is…should YOU own gold?

After 10 years of overall rising prices, investors should be somewhat careful when considering this as an investment alternative.  Currently, the gold trade is a very crowded space.  Everyone is talking about it, everyone wants to own it, new gold investment products are being created on a daily basis to allow individuals to conveniently invest, multi-level marketing firms have been created to sell gold, and gold dealers across the globe have never been busier. These things often indicate a market nearing a relative top, NOT a market bottom (Remember the dot.com days or the “they aren’t making any new land” days…..).  Gold investments are starting to have the same feel as these other asset classes a few years back.

So the answer is…It depends.
Why are you buying it? What do you expect out of it? 
Is it to hedge inflation, out of fear, or speculation?  Wedding Engagement?  
Do you have a strategy for selling it?  
Again, do your homework to answer these questions honestly.  Identify the “real” purpose behind your decision before you take the plunge….in the market….or at the altar.

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Wealth planning

Disclosures

Source: www.gold.org (Article was sourced on September 16, 2020)

The views presented herein are solely those of Peter Alepra and do not necessarily represent the views of RBC Wealth Management. The current status of issues discussed in this article is subject to change based upon market conditions and industry fundamentals.  Clients should work with their Financial Advisor to develop investment strategies tailored to their own financial circumstances. Past performance is no guarantee of future results.  The name Corridor Investment Group refers to a group of Financial Advisors working in the Cedar Rapids, IA office of RBC Wealth Management.  The Corridor Investment Group is not a separate legal or corporate entity.  All services offered and all memberships referenced in the article refer to the services offered or registrations held through RBC Wealth Management.  RBC Wealth Management, a division of RBC Capital Markets LLC, Member NYSE/FINRA/SIPC.

James Vandenberg, NMLS # 1847834 through City National Bank, may receive compensation from RBC Wealth Management for referring customers to City National Bank. Banking products and services are offered or issued by City National Bank, an affiliate of RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC and are subject to City National Banks terms and conditions. Products and services offered through City National Bank are not insured by SIPC. City National Bank Member FDIC.

Investment products offered through RBC Wealth Management are not FDIC insured, are not guaranteed by City National Bank and may lose value.