Why Invest in Gold Bullion… and Get Paid for Doing So
Physical gold serves at least four important investment objectives:
- First, it provides a form of financial insurance should unforeseen economic or political events diminish the value or liquidity of your ordinary equity, fixed income, or real estate assets. This alone is sufficient reason to allocate up to 10% of one’s investments and savings to physical gold. And, just like life insurance, your home-owners insurance, your health insurance and your auto insurance, you’re happiest never collecting.
- Second, gold is the preeminent inflation hedge, offering protection against excessive monetary creation, future inflation at home and U.S. dollar devaluation in world currency markets.
- Third, it is a unique portfolio diversifier. Even though the price of gold may be, at times, quite volatile, because its price movements tend to be uncorrelated with the ups and downs in other asset prices, it reduces the volatility and price risk in one’s overall investment portfolio. In other words, a portfolio including gold is over time less volatile than the same portfolio excluding gold.
- Fourth, gold’s supply/demand fundamentals – especially expected growth in both jewelry and investment demand from China and India as well as increasing central-bank reserve accumulation – suggest its price will move sharply higher in the next three-to-five years – and is likely to continue outperforming most other investments, much as it has over the past decade.
Many investors confuse gold with gold-mining equities, gold exchange-traded funds (ETFs) and other “paper” gold investment products. But when I recommend holding up to 10% of one’s overall investments and savings in gold, I’m talking about physical gold – bullion bars and bullion coins – that you can actually hold and store on your own or with a safe-deposit facility of your own choosing.
Chart taken 12/31/2016