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Taking the Shine Off Gold

McKenzie Ebbesen, CFP® - Wednesday, April 26, 2017


Talking gold with McKenzie Ebbesen, Denver Financial PlannerFor millennia, people have revered gold for its beauty and its value. All major civilizations have cherished it in some form and recognized its powerful appeal. In addition to its use as jewelry, gold has often served as a form of currency. In fact, some of the earliest gold coins can be traced to Croesus of Lydia around 560 BC.

These days, you’ll hear people talk about gold as an investment – a potential safe haven in an uncertain market. Greg Phelps explains in his Retirewire blog that investors buy gold for four major reasons:

  1. For performance, anticipating it will grow in value;
  2. As an inflation hedge;
  3. As a way to diversify their portfolios; and
  4. Out of fear that the dollar will collapse.

While gold has performed well in recent years, you’d be smart to look at its long-term performance compared to that of stocks and bonds. In fact, if you compare gold to the Dow Jones Industrial Average, you’ll see the difference. In 1929, for example, gold sold for $20.63 an ounce and the Dow closed at 248.48. Moving forward to 2015, gold closed at $1,061.00 and the Dow at 17,425.03. Over 86 years, gold increased by a factor of 51. In the same period, the Dow increased by a factor of 70. In both cases, most of the increase has come in the last six years or so.

During the most recent financial crisis, Treasury bonds, not gold, actually performed the best, and according to MarketWatch, gold has underperformed as a safe haven over time. In 2008, for example, the article states that gold fell as much as 30 percent as investors dumped their assets looking to raise cash.

Gold is one way to diversify a portfolio, but perhaps not the best way. As Phelps noted, gold doesn’t produce an economic return in the way that stocks and bonds can. With gold, Phelps says, “You can’t buy a Slurpee at 7/11 with it, and you can’t force it grow and expand like a business. It’s just a hunk of metal.”

A 2016 article by US News found that well-known investor Warren Buffett has similar feelings about gold as an investment. Quoting the article: “Gold investors, [Buffett] says, are ‘right to be afraid of paper money. Their basic premise that paper money around the world is going to be worth less and less over time is absolutely correct. They have the correct basic premise. They should run from paper money. But where they run to is the mistake.” For Buffett, gold’s glitter isn’t enough to lure him away from a historically better performer: the stock market.

Are you thinking of investing in gold? Consider talking with us first. At M.J. Smith & Associates, we prefer to take a holistic view of your finances, and work with our clients to help design a portfolio that suits their long-term goals and objectives. Further, we’re committed to placing our clients’ interests first, something you won’t find from a gold seller. Contact us for a complimentary, no obligation consultation today. As always, it’s our privilege to serve you.




Opinions expressed are those of McKenzie Ebbesen and are not necessarily those of RJFS or Raymond James. This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk, investor may incur a profit or loss regardless of the strategy or strategies employed. Diversification does not ensure a profit or guarantee against loss. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index used to measure the daily stock price movements of 30 large, publicly owned U.S. companies. Please note direct investment in an index is not possible. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: prices being subject to wide fluctuation; the market being relatively limited; the sources being concentrated in countries that have the potential for instability; and the market being unregulated. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

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