Should I invest in gold?
Has someone advised you to invest in gold? Did they tell you that gold is a safe investment in times of political and financial uncertainty?
Things are a bit crazy in the world, to say the least. With that being said, whenever there are times of turmoil in the world, many pundits become gold bugs. Here are my thoughts about investing in gold, as well as a couple of charts that tell the story.
Gold has historically been a very poor long-term investment when compared to the overall market
You can see this statement illustrated in the chart below which just compares the price of gold to the S&P 500 from 2012 to the present.
When you consider the following, the return on gold is even worse:
- Transaction(s) costs when buying gold
- Costs of carrying/holding the gold (Where are you going to store it?)
- Inflation
In the event of war, a zombie apocalypse, or swarms of locusts, what are you going to do with that gold?
How could you use gold in a catastrophe? Shave off a few flakes and buy some bread or bullets?
How do you avoid said gold making you a target on your back? I hear zombies like shiny objects, as well as brains…. :)
Is buying gold baseless internet advice?
In finance, “parabolic” refers to a very rapid and dramatic increase in the price of an asset, such as a stock as demonstrated on the right side of this graph.
I can remember back in 2009 when we were barely past the market nadir of the 2007 to 2009 Global Financial Crisis. Many pundits and articles were touting gold as the future, including one article that talked about gold going “parabolic.”
Proving that once things are on the internet, they never die, I was actually able to find a copy of this 2009 article.
As you’ll read in the article, the writer capitalizes on the recent run-up in gold prices through November of 2009, subsequently predicting that gold had no limits to the upside.
I can remember another predictive graphic being used for gold prices at the time, including a “hockey stick chart.” (As an Alaskan, I love that image!)
An example of a hockey stick graph courtesy of www.free-power-point-templates.com.
Did gold run a little further after 2009?
Yes. Did it go “parabolic?” Hardly. In fact, if you had followed the advice of this article, loaded up on gold and held it just through 2013, you were in for a BIG surprise. And not a good one….
By the end of 2013, the value of your recently-purchased gold had dropped almost 15% while the S&P 500 soared 40%. Never mind the fact that inflation increased each year from 2010 through 2013, further devaluing the purchasing power of your gold.
This chart shows how S&P GSCI Gold rose and fell at relatively equal rates from 2009 through 2013 and then dropped dramatically over the next year while the S&P 500 increased consistently. Source www.ycharts.com.
The bottom line here is that history has a way of repeating itself
I obviously can’t predict the future of the market or gold prices, but I’ve heard this story before and wanted to share.
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Bright Road Wealth Management, LLC (“BRWM”) is a Registered Investment Adviser. Registration as an investment adviser does not imply a certain level of skill or training, and the content of this communication has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority. BRWM renders individualized investment advice to persons in a particular state only after complying with the state’s regulatory requirements, or pursuant to an applicable state exemption or exclusion. All investments carry risk, and no investment strategy can guarantee a profit or protect from loss of capital. Past performance is not indicative of future results.
