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Why Buy Gold ?
Gold is treasured throughout the world for its value and rich history, which has been interwoven into cultures for over Three thousand years. Coins containing gold are first recorded to have appeared around 800 B.C., and the first pure gold coins were struck during the reign of King Croesus of Lydia about 300 years later. Gold has been a store of value for at least 3,000 years, while one of the longest currencies in history, the British Pound, is only about 1,200 years old. One of the crucial promises of money is that it serves as a long-term store of value. Gold fulfills this promise better than any fiat currency.
Those that criticize gold because it doesn’t produce income misunderstand its role in a portfolio. It isn’t gold’s job to produce income; its function is as money and a store of value. This is also why gold shouldn’t be viewed as just another commodity; gold don’t get “used up” like oil or corn, since almost all the gold ever dug up is still in existence.
The Takeaway: Physical gold is one of the most ideal forms for long-term wealth preservation. It is also ideal for your heirs since it will outlast any currency they may use in the future.
When Times get hard, you’ll want something Tangible
If you buy physical gold, you can hold it in your hand, something you can’t do with most any other investment. Real gold can’t be destroyed by fire, water, or even time. And unlike other commodities, gold doesn’t need feeding, fertilizer, or maintenance.
There’s another advantage to gold being a tangible asset: it can’t be hacked or erased. Unlike brokerage accounts, bank accounts, and payment services like credit cards, gold is out of reach from hackers and identity thieves.
In today’s world, it’s probably a good idea to have some of your wealth outside of digital form. If the internet isn’t available or your online world comes crashing down, those gold Eagles you possess aren’t affected. In fact, in that scenario, they could be the difference between life and death.
The Takeaway: Physical gold is not subject to the risks that come with paper assets. It can’t be hacked or erased with a click of a button
Gold will always have a Bright Future
If you hold gold, no paper contract is needed to make it whole. No middleman or other party is necessary to fulfill a contractual obligation. That’s because gold is the only financial asset that is not simultaneously some other entity’s liability. This is important because gold will be the last man standing when bubbles pop or a crisis hits. That’s a powerful tool to have in your portfolio when things start to go wrong in your country or economy. It also means gold won’t go to zero. It’s never happened in its 3,000+ year history. That’s a powerful feature, especially if you asked former shareholders of companies like Bear Stearns, Enron, or Lehman Brothers. Gold will always have value. You can always sell it if you need currency.
The Takeaway: Physical gold cannot go bankrupt or broke. Gold will never default on its promises or obligations.
Privacy in a World of Disclosure
In a world where devices track our every step throughout the day, our cell phones let us know the fastest route home, and our debit cards are getting better technology to track just exactly how we spend our money ; It can begin to feel like we’ve lost the right to privacy all together . Finding a place to put a portion of your wealth in that is both private and confidential can leave you feeling rather anxious. Gold is one of very few investments that can be anonymous. If you choose, no one must know you own it. Virtually any other investment you may make does not have this benefit. How many assets can you say that about in today’s world? If you want a little privacy, physical gold is one of the few assets that can provide it.
The Takeaway: If you want a private or confidential form of wealth, gold is one of few assets that can offer this.
Gold is also ideal because it is easy to sell and can be carried in your pocket anywhere you go. Gold is highly liquid. Virtually anyone in the world will recognize a gold Eagle and buy it from you. You can sell it to your local coin shop, a private party, an online dealer, etc. It can always be sold for cash or traded for goods.
The process is frequently quicker than selling a stock in your brokerage account—it usually takes 3 business days for settlement before cash can be transferred to your bank account or a check mailed; other collectibles, like artwork, could take longer to sell, have a small customer base, and would likely entail a big commission. This liquidity means you can take gold with you literally anywhere in the world. And if you’re uncomfortable crossing a border with it, you can buy gold you can transport
The Takeaway: Gold is easily convertible to cash and can go with you anywhere in a time of crisis.
Cheap and Easy Storage
One question that comes up with physical gold is the cost of storing it. But while professional storage does come with a fee, vaulting charges are typically low. And compare a small storage bill to the costs and headaches of, say, real estate. Just lock your gold away until you need it—no late renter payments, calls to fix a broken toilet, or complicated tax issues. Of course, you can always hide or secure gold in your home, too. Keep in mind that gold is value dense. That means it packs a lot of value in a small space. You can hold $50,000 of gold in the palm of your hand—or store it in a small space in your home. And at any price above $1,200/ounce, you can store more value in a safe deposit box with gold than stacks of dollar bills.
The Takeaway: Gold storage is low maintenance, low-cost, and requires little storage space.
Hedging Your Stock Market Investments!
Want to hedge the stocks you own? Do you sometimes worry the stock market might crash? Gold may have an answer for you. This chart shows gold’s correlation to other common asset classes since 1976.You can see that on average, when the stock market declines, gold has historically risen more than fallen. This inverse correlation holds true even when the stock market has crashed. Check out how gold performed in the 8 biggest stock market declines over the past 4 decades.
Gold’s Performance During Stock Market Crashes
|Dates of S&P 500’s Biggest Declines||S&P 500||Gold|
|Sep 21, 1976 – Mar 6, 1978||-19.4%||53.8%|
|Nov 28, 1980 – Aug 12, 1982||-27.1%||-46.0%|
|Aug 25, 1987 – Dec 4, 1987||-33.5%||6.2%|
|Jul 16, 1990 – Oct 11, 1990||-19.9%||6.8%|
|Jul 17, 1998 – Aug 31, 1998||-19.3%||-5.0%|
|Mar 27, 2000 – Oct 9, 2002||-49.0%||12.4%|
|Oct 9, 2007 – Mar 9, 2009||-56.8%||25.5%|
|May 10, 2011 – Oct 3, 2011||-19.0%||9.4%|
You can see that in most cases, gold rose when the S&P crashed (gold’s only significant selloff, -46% in the early 1980s, occurred just after its biggest bull market in modern history.)
It’s true the gold price initially fell in the shock of the 2008 financial crisis. But while the S&P continued to decline, gold sharply rebounded and ended the year up 5.5%. Over the total 18-month stock market selloff, gold rose over 25%. Gold doesn’t automatically rise with every downtick in the stock market, but history shows it is sought as a safe haven in big stock market declines. This insight has a practical application:
The Takeaway: If you want an asset that will rise when most financial assets fall, gold is likely to do that more often than not.
Gold Will Protect Your Portfolio in Times of Crisis
One of gold’s strongest advantages is that it can protect your investments—even your standard of living—during periods of economic, monetary, or geopolitical crisis. And depending on the nature of the crisis, gold can move from a defensive tool to an offensive profit machine.
When a crisis strikes and drives fear higher—whether it’s from investors worried about the stock market or a full-blown event affecting the livelihood of all citizens—gold is a natural safe haven. Fear is what drives people in a crisis, so the greater the worry the more gold is sought and the higher its price goes.
A lot could be written about the various crises that are possible today, but the point is that the level of risk in our economic, fiscal, and monetary systems is elevated. There are so many risks, in fact, that the gold price is likely to make new all-time highs in response to some of these crises playing out.
Here’s the kind of potential gold has… the second half of the 1970s was a troubling period—it included interest rates over 15%, high unemployment, a 14% inflation rate, an energy crisis including an oil embargo, the Soviet invasion of Afghanistan, cold war tensions, and recessions at both the beginning and end of that period. How did gold respond to all this?
From its low in August 1976 to its January 1980 high, gold rose a whopping 721%!
Gold is usually about defense, but in addition to its staying power, gold offers massive profit potential given the precarious nature of our economic, financial, and monetary systems today. The core reason for this is due to the growing supply of fiat currencies and mounting debts around the world. This tells us that the fallout could be much worse than usual—and the greater the fallout, the higher gold will go.
The Takeaway : In a world of elevated risks on multiple fronts, gold offers lower risk, greater safety, and bigger upside than any other investment.
Although the U.S. dollar is the world’s reserve currency, the value of the dollar is still susceptible to falling against other currencies just as it did between 1998 and 2008. Events such as this often prompts people to flock to the security of gold, which raises prices. The price of gold nearly tripled between 1998 and 2008, reaching the $1,000-an-ounce milestone in early 2008 and nearly doubling between 2008 and 2012, hitting around the $1900 mark. The decline in the U.S. dollar occurred for several reasons, including the country large budget and trade deficits and a large increase in the money supply.
Gold has historically been an excellent hedge against inflation, because its price tends to rise when the cost of living increases. Over the past 50 years investors have seen gold prices soar and the stock market plunge during high-inflation years.
Deflation, a period in which prices decrease, business activity slows, and the economy is
burdened by excessive debt, has not been seen globally since the Great Depression of the 1930s.
During that time, the relative purchasing power of gold soared while other prices dropped
Gold retains its value not only in times of financial uncertainty, but in times of geopolitical uncertainty. It is often called the "crisis commodity," because people flee to its relative safety when world tensions rise; during such times, it often outperforms other investments.
For example, gold prices experienced some major price movements this year in response to the crisis occurring in the European Union. Its price often rises the most when confidence in governments is low.
Much of the supply of gold in the market since the 1990s has come from sales of gold bullion from the vaults of global central banks. This selling by global central banks slowed greatly in 2008. At the same time, production of new gold from mines had been declining since 2000.
According to BullionVault.com, annual gold-mining output fell from 2,573 metric tons in 2000 to 2,444 metric tons in 2007 (however, according to Goldsheetlinks.com, gold saw a rebound in production with output hitting nearly 2,700 metric tons in 2011.) It can take from five to 10 years to bring a new mine into production. As a rule, reduction in the supply of gold increases gold prices.
Increasing Demand Across the World
In previous years, increased wealth of emerging market economies boosted demand for gold. In many of these countries, gold is intertwined into the culture. India is one of the largest gold-consuming nations in the world; it has many uses there, including jewelry. As such, the Indian wedding season in October is traditionally the time of the year that sees the highest global demand for gold. In China, where gold bars are a traditional form of saving, the demand for gold has been steadfast.
Demand for gold has also grown among investors. Many are beginning to see commodities, particularly gold, as an investment class into which funds should be allocated. In fact, SPDR Gold Trust, became one of the largest ETFs in the U.S., as well as one of the world's largest holders of gold bullion in 2016.
The key to diversification is finding investments that are not closely correlated to one another; gold has historically had a negative correlation to stocks and other financial instruments. Recent history bears this out:
· The 1970s was great for gold, but terrible for stocks.
· The 1980s and 1990s were wonderful for stocks, but horrible for gold.
· 2008 saw stocks drop substantially as consumers migrated to gold.
Properly diversified investors combine gold with stocks and bonds in a portfolio to reduce the overall volatility and risk.
The Bottom Line
Gold should be an important part of a diversified investment portfolio because its price increases in response to events that cause the value of paper investments, such as stocks and bonds, to decline. Although the price of gold can be volatile in the short term, it has always maintained its value over the long term. Through the years, it has served as a hedge against inflation and the erosion of major currencies. Protect you and your loved ones before it’s to late .
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