With interest rates close to zero in much of the world, the old argument about gold not being a safe haven is no longer golden conventional wisdom. Gold has been a store of value for more than 5,000 years. During a good part of those years, gold served as money. There have been hundreds of other forms of money during those 5,000 years, and most don’t exist anymore.
For quite some time, I have written in my books that gold is
not a commodity, but, rather, a universal currency and hedge against calamity.
2018 American Eagle one-ounce gold bullion coin. Photo courtesy of US Mint
The United States is holding on tightly to 261 million troy ounces
of gold. Other countries’ central banks are holding onto a more than 800 million
troy ounces of gold, with countries such as China, Russia, India and Turkey
aggressively adding to their gold reserves. These countries are holding this
gold because they recognize that gold is a true and ultimate form of wealth.
Gold prognosticator Maurice Rosen, editor of the award-winning Rosen Numismatic Advisory, compared
the performance of gold bullion to Warren Buffett’s Berkshire Hathaway stock (BRK.A/BRK.B)
during the 20-year-period 1999-2019. He says that during this two-decades-long
time frame, Berkshire increased by 387%, whereas the price of gold increased by
488%. Warning: This is a select time frame, and there are periods where
Berkshire handily outperformed gold. But using Buffett’s own guidelines about holding
investments for the long term, this is a long-term period where gold
outperformed Berkshire stock.
Many financial service professionals now recommend that your
gold or gold-related assets be 2% to 15% of your overall portfolio, excluding
the value of your primary residence. The more that you are familiar with gold
and its trends, the better qualified you are to determine what percentage is
best for you. If you know very little about gold, 2% might actually be too
much. But if you are intimately familiar with gold, 15% might be too little. Gold can be extremely volatile and might be completely
unsuitable for some investors, such as retirees. Always consult with a
qualified financial advisor before making financial decisions of this
With recent stock market volatility and fears of a looming
global recession, more investors are looking to gold as a safe haven. But there
are no hard and fast rules relating to the correlation between the price of
gold compared with stocks and bonds. Recently, gold has increased in value in
tandem with stocks. But during the 1970s, gold increased in value handily even
in the face of a stock market under pressure. In 1980, gold hit a high of
$887.50/ounce on the international market. And Gold hit an all-time high of
$1,923/ounce in September 2011.
If you buy gold as insurance, you won’t be shaken by its
gyrations. I suggest buying a very modest amount of gold in the beginning. One
way to educate yourself about gold’s price performance is by buying an Exchange
Traded Fund (ETF) such as SPDR Gold Shares (GLD). This
form of “paper gold” is popular, as it can easily be held in an IRA.
Holding physical gold in an IRA requires appointment of an IRS-approved
custodian who holds the gold coins for you.
Some people can get by just fine by holding onto their gold jewelry, as opposed to trading that jewelry for gold coins. Just remember that selling jewelry will translate into commissions of at least 15% to 20%. I explore this in my Bottom Line video on gold.
Among the most popular forms of gold ownership are pre-2019 American Eagle one-ounce gold coins, which often trade at a slim premium of 3% or so above the “spot” price of gold, currently $1,506/ounce as of August 20, 2019. Current year, 2019, American Eagle one-ounce gold coins sell at a premium of 5% or so above spot.