What is it about gold? It’s easy to go back to the Egyptians and beyond to see the allure and intrigue gold has held over the centuries and it still manages to tug at our hearts — and our wallets — today. But while gold may conjure up images of shiny, sparkly things that are beautiful to the eye, it doesn’t necessarily shape up to be a good investment.
A year ago, when investors were still feeling wary of the stock market, some of my clients were asking me if they should invest in gold. The idea hadn’t come out of nowhere. Back then, and even today, there were a number of companies running commercials, placing ads and sending out aggressive email campaigns that featured alarming headlines designed to send investors running from stocks into the gold market. The price of gold peaked in 2011 when panicked investors were pulling their assets out of the stock market as fast as they could and looking to gold as a safe haven. But it turned out to be far from safe. Last month’s tumbling prices spurred headlines like Marketwatch’s Why gold is falling and won’t get up again. Today, gold is down 40% from its high in 2011.
So with gold prices at a 5-year low, I’m once again being asked if now is the time to buy. While I would never promise to be a fortune teller — especially when it comes to the markets! — here are a few facts to consider:
- Gold’s price drop has been influenced by the strength of the U.S. dollar against other foreign currencies, as well as relatively low inflation rates present in the U.S. over the past few years.
- Investor sentiment typically favors the current “winner.” When stocks and bonds are up, as they have been recently, the price of gold tends to fall.
- Historically, appreciation in gold’s value has failed to keep pace with inflation over the longer term, making it an ineffective hedge against inflation.
- Regardless of its current price, gold lacks the ability to generate the potential for ongoing income offered by investments in stocks and bonds.
- Gold is taxed at a higher collectibles rate than most stock or bond investments.
It’s no wonder DailyFinance has called gold “the worst investment in history.” The facts don’t lie. And yet I expect gold will always be attractive to us all. It reminds us of sentimental things — jewelry, treasures and glittering riches. But despite its beauty, gold’s value as an investment falls flat. So the next time you hear a commercial, see an advertisement or receive an email that insists “gold is the answer,” head to the jewelry store. Perhaps the wisest gold investment you can make is purchasing a lovely bangle that puts some of gold’s glitter within reach. The sentimental value of what you buy will probably bring you much greater satisfaction and less disappointment over the long term than any investment in the gold market.
Want to learn more about investing wisely for the long term? Let’s schedule a time to talk. I’m always here to help.