Gold just closed above $2000 for the first time on 4 Aug!
I've received quite a few questions about gold recently. Mostly along the lines of Should I buy? Should I sell?
I always tell people to go back to basics and figure out the WHY of everything. What is the purpose of whatever you are wanting to do? You can't really eat gold (maybe you could cover yourself in it!) so the following are some possible purposes:
1. As an investment
I don't really buy gold as an investment as it does not give me a return intrinsically. It cannot reproduce (like livestock) or multiply itself (like agriculture) nor does it produce cash flow like a business. Therefore it is not an investment to me.
2. As a trade
Yes. It can be used as a speculative instrument for trading. But that will now depend on you having an actual method for being able to buy low and sell high, combined with good money management techniques and the right emotional maturity.
3. As an inflation hedge
I am not as convinced about this as in the past. Exposure to assets such as real estate or companies that are able to pass on the costs of inflation actually do a better job.
4. As a form of money
Maybe, but too restrictive for everyday use. The good thing about gold is that all other forms of money is actually someone else's liability. Therefore it is only as good as the credit worthiness of that counterparty. In this case, the dollar bill in your hand is only as good as the credit of the country issuing it. Think Zimbabwe. All paper currencies in the world are just floating against each other and in a race to the bottom.
5. As a hedge against governments and central banks going crazy
Yes. This is a legitimate use for gold and one of the main reasons why it has been outperforming. And against confiscation. We are living in such peaceful times these days that we have forgotten a rogue dictator could come on the scene easily and confiscate your assets by decree. Gold allows you to keep it separate.
6. As a crisis hedge
Think something like war or serious upheaval. You won't be able to take your house or business with you, but you could stuff your gold bars into your haversack and get into a boat and hopefully start over. Think Vietnam.
7. As jewelry
That will be personal, and to each his own.
So, what is the purpose of your owning gold? If it is a trade, then you need to know how to trade. If it is for some of the latter reasons, then ask, has the reason for me to own gold changed? Is there still the risk of confiscation, countries debasing their currency, a rogue government coming into power? If not, then why are you thinking of selling?
Key: The PRICE of gold should not have changed the PURPOSE for you owning or not owning it.
Confession. I used to be a bit of a gold bug. My thinking has changed somewhat to what I have written above. I still own gold but only enough to achieve some of the purposes above. If you own a lot of gold, then you need to be asking whether you are actually hoarding instead. I can't answer that for you, because it is a heart issue. Just be careful it does not end up being selfish.
Remember the parable of the talents, where one of the servants was chastised for burying his allotted gold talent in the ground? Holding too much of your wealth in gold would mean that you can't contribute to the economy by investing in something innovative, productive or provides employment. Personally, I would rather that my resources be put to as much use as possible, whilst having a sensible allocation against some risks.
Hope that helps frame your thinking about gold. Bless you!
On-Demand Microwebinar on Faith, Finance and Investing: https://bit.ly/JF-TrainingPage