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.