Is Gold a Good Investment Right Now?

Gold recently has hit a record highand there are always infomercials telling investors to start buying precious metals, especially when the stock market hits a record high or when the markets are experiencing challenges in a bear market.

I have no idea when this idea became a phenomenon but it’s something that seems to be sold to people as a fear-based transaction. Similar to telling people to sell their investments and buy insurance products during recessions. What’s important is to stick to the facts and not if, but when markets decide to correct downward, it’s essential to make sure you know what the long-term outcomes of purchasing gold could produce for you in the future.

Fact: According to Wharton Professor Jeremy Siegel in his book Stocks for the Long Run(2022) edition, he shows a graph of all the “REAL Returns” of different asset classes. Real return is the amount an investor makes after taking into consideration inflation, which is always there for any person who’s putting their money into investments.

Professor Siegel shows in his book the following Total Return of stocks, bonds, bills, gold, and the US Dollar.

Stocks: 6.8% Real Return

Bonds: 3.3% Real Return

Bills: 2.5% Real Return

Gold: 0.6% Real Return

US Dollar: -1.4% Real Return

Past performance isn’t indicative of future results. These statistics date back to January 1802 through December of 2023. If that doesn’t convince you that over the long term, gold is not a good investment, let’s take into consideration what Warren Buffett has said about gold.

According to what Buffett has said publicly, gold is a non-productive asset. Meaning it doesn’t produce anything for consumers. The analogy he likes to make is to compare gold to farmland. If you own let’s say a farm that produces corn. That farm will continue to produce corn over its lifetime. Compared to gold, you’re essentially buying it now and hoping that someone else will purchase it for a higher price later. This is the same thought process that caused the late Charles Munger to call cryptocurrency“Rat Poison.”

Investing into something that doesn’t produce anything for someone to purchase, in Buffett & Munger’s opinion isn’t something that has any intrinsic value. Meaning if there are no earnings, there is no value. The same thought process came to fruition during the dot com boom where Berkshire Hathaway essentially didn’t buy any technology companies and eventually the stock values came tumbling down once the bubble bursted.

On the flipside, in the short term if you’re looking to put your money somewhere, placing it into gold is better than keeping it in US dollars which since January of 1802 has had an average return of negative 1.4% versus gold which has produced about 0.6%. A 2% difference. But, when you compare that to purchasing a real asset such as farmland or a wonderful income-producing company, history would tell us there is no comparison.

Over the course of time, in the short run investing into companies via the stock market are more volatile compared to other asset classes. What is important to realize over the long run owning well-established companies provides smoother seas for investors around the world.

To Growth, Family, and Philanthropy,

Joshua Krafchick | 369 Financial

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