Owning and Investing in Gold: the Pros and Cons (Conclusion)
Even if it's only a small amount of placer or lode-mined gold, I suspect we all have some Au in our possession. In this post, I'll continue to address the pros and cons of owning or investing in physical gold in the hope that at least part of this information will prove valuable to you.
Gold as a Inflationary Hedge?
One of the biggest worries many people have involves the value of the paper money they hold in various accounts, be those regular savings or checking accounts, 401k retirement accounts, or certificates of deposits and individual retirement accounts (IRAs). There's no doubt that the purchasing power of the American dollar has taken a slow nosedive over the years. I can remember new homes selling for $18,000-$23,000 in my hometown the year after I returned from Vietnam in 1970 (you know, after doing my bit fighting to prevent the dominoes in Southeast Asia from falling on one another or, alternately, keeping the world safe for democracy...take your pick. And yes, I'm oozing sarcasm here). Anyhoo, by 1990, the average American home would run you around $150,000. In the year 2000 that figure jumped to nearly $220,000! It's easy to see that as time has progressed it has taken more dollars to purchase just about anything simply because the purchasing power of that folding green has weakened...sometimes dramatically. A good example is that the price you would have payed for a new home in 1970 wouldn't even be enough today to buy one of those fancy, "big dick" pick up trucks sold today by Ford, Chevy, or Dodge.
(You could've purchased a house for the price of this truck way back when. That's inflation.)
By way of contrast, take a look at the price (averaged) per troy ounce of physical gold over the same time period in five-year increments:
1975: $139.00 (the result of gold no longer being tied to the U.S. dollar)
1980: $594.90 (wayyyy up!)
1985: $327.00 (a slip downward here after the Hunt brothers and others finished manipulating the gold and silver markets in the early 1980s)
1990: 386.20 (a slight trend upward)
1995: $387.00 (nearly steady state after five years)
2000: $272.65 (another downward trend or "adjustment" in relation to the dollar)
2005: $513.00 (nearly doubled over the course of five years)
2010: $1,420.25 (almost a tripling of the 2005 value)
2015: $1,060.00 (another back step)
Today: $1,215.00 (another upward trend)
Gold Will Retain Its Value
Again, you must view physical gold's "real" value in terms of long-term trends. Let's say I had $400.00 in my pocket back in 1970 (which I didn't, by the way. I was a down-and-out college student at the time) and had used that cash to buy 10 troy ounces of gold. My goal, of course, would have been to hang onto that yellow bullion as a hedge of sorts against the ever-inflating American dollar. In order to fulfill my goal let's say I actually resisted any and all temptations to sell that gold, including blowing its value on booze, women, and designer drugs. Now, 48 years later I find out that the gold I bought wayyyyyy back in 1970 is now worth $14,150! That's a pretty nifty profit IF I was inclined to sell my 10 ounces today. (And I just might if I wanted to help pay for a grandchild's education or something else really noble, ya know?) But the point of fact is that I won't sell the gold currently in my possession simply because I don't want to exchange "real" value for "fake" value. The overall idea? Hang onto that yellow as a hedge in case things get really bad. Anyway, that's the idea behind most people's desire to hang onto their gold...even the filthy rich and the high and mighty. They know that gold is, at the very least, going to retain its value over time and in the best-case scenario, it will climb steadily upward in price despite occasional slips and falls.
As a counterpoint, there are plenty of financial and investment "experts" out there who will tell you exactly the opposite. They claim that holding physical gold is not a good investment (or hedge) because your dollars are just sitting there and not working for you, much like a current savings account where the interest rate is less than one percent. There may be some good insights in what these counter-hedge folks say, but they usually have some sort of ulterior motive. Like, "Hey there! Why not sell off all that gold of yours and buy what I'm selling?" Which is usually some sort of paper investment scheme, albeit on the up-and-up. Like the old stock market admonition likes to state, I think your best bet investment-wise is to "diversify" if you're able to do that. Real estate, tax deferred accounts, stocks and equity funds, gold, silver, etc. That's my gig and as I approach the light at the end of the tunnel I'm set up pretty well. Yes, only to pass it on to the wife or son or grandchild...you're right. But I ain't taking it with me, my gold included. Like a good friend from Korea once told me, "a shroud has no pockets." By the same token, I've always been a generous person when it came to helping out others and I've never been a miser or penny pincher who never leaves a tip for a hard-working waiter or waitress. Hoarding anything, including gold, is a sickness if it becomes extreme and so is the love of the dollar in all its forms. Take heed here.
(Misers are losers in the end.)
The Less it Means
I could go on at length about other issues involving gold ownership and investment but methinks you don't need a 10-post course on how to spend your money or handle the gold you own. Each to his or her own, right? But I do urge you to be smart with your gold (and your money), however you define that term. I can tell you this, the years fly by and you don't want to end up in your late 50s or your 60s or 70s dependent solely on government "largess" to see you through your so-called Golden years. You'll just about starve to death on your Social Security payments if the government dole is all you've managed to save over time, God forbid. And I mean that sincerely. You don't have to be some rich wag who drives a Lambo and has millions stashed away in all sorts of accounts, or a muttering old miser with jars of gold "rounds" stashed all over his tumbledown shanty. You need far less than you might think in terms of gadgets, things, toys, and possessions. And the older you get the less those things will mean to you.
(I'd love a Lambo but I wouldn't bankrupt myself for one.)
But gold? That yellow glow is a good thing to have around no matter what.
Take care all.
(c) Jim Rocha 2018
Questions? E-mail me at email@example.com