There are usually two camps to the gold issue. One group says that gold has always been a medium of exchange and that, as a physical resource, the demand for gold will never go away. The second group argues that gold isn’t really worth much except what people are going to pay for it. It just sits there, collecting dust, not producing income or ROI.
So which is it? Is gold a legitimate investment or should we consider it a gamble? Well first let’s look at a brief (very brief) history of gold and how it has been used.
For thousands of years gold has been seen as a valuable resource. The ancient greeks at around 700 B.C. valued it enough to issue the first gold coins. This was under the reign of King Croesus of Mermnadae, who was a ruler of Lydia. They formed coins using a mixture of gold and silver that is called electrum.
As time progressed, more and more civilizations recognized the value of gold as a medium of exchange. For example the use of gold spread to Asia Minor as well as Egypt. The next big champion of gold were the Romans. They developed more technology that helped mine it in their vast empire.
As China and Indian economies developed, they began trading their valuables like silk and spices to the western countries for gold and silver. Gold continued to be used by civilizations for trade. It was always seen as a “precious metal.”
Fast forward a bit and we come to the early U.S.. The largest advancement in the case for gold occurred in 1792 when the U.S. adapted gold and silver as our currency standard. For decades after the U.S. used these two forms as money until paper currency was adapted in the United States. However even when we adapted paper, the backing behind it continued to be gold.
Eventually in the late 20th century, the gold standard was ended and fiat money took over as the form of currency for our country. Ever since gold’s price has moved up and down with demand and supply.
So, has it been a good investment?
The answer depends on what time frame you look at. For example after the crash of 08 and 09 gold skyrocketed in price. However recently the price has been dwindling. Overall, since we went off the gold standard, gold has gone up around 3% per year. How does that compare to stocks? Pretty poorly. Stocks have produced around a 6% return above inflation during that period.
So, does gold have any place in a portfolio? The answer is maybe. Looking at how modern successful investors view this resource, we can see that gold is best used as a small percentage of any portfolio. It can balance out times of panic when the stock markets plummet. Ray Dalio, a successful hedge fund manager and billionaire, has invested in gold only as a small portion of his overall investments.
Finally, the choice is really up to you. Talk to your investment advisor and do some research on your own. You may find that a 10% allocation of gold can significantly reduce the risk for your retirement account. Or maybe you decide not to because you realize you can produce better returns without it. Either way, don’t consider gold a true investment for any meaningful percentage of your investments.