Investors and pundits who focus on short-term profits often like to denigrate gold every chance they can get. That’s particularly true when gold gives up some of its gains. And recently those pundits have been having a grand old-time criticizing gold and its usefulness to investors.
In reality, the gold price fluctuates all the time, and especially during times of economic turmoil. From October 2007 to March 2009, when stock markets lost over 50% of their value, gold gained 25%. But it wasn’t a straight march upward. Gold actually lost value in 2008, sliding alongside stocks in late 2008 as everyone thought the financial market would collapse.
As expected, however, gold rebounded, repaying investors who trusted in gold with great gains that continued for the next several years. So any recent softness in the gold price should be viewed for what it likely is, a momentary pullback that in the long term will be forgotten as gold continues its long term movement upwards.
For those who may still be skeptical, or for those who need encouragement to dip their toes into the gold market, here are three good reasons to continue trusting in gold.
1. Gold Has Stood the Test of Time
Gold has served as a monetary metal and standard of wealth for millennia. But it was during the era of the classical gold standard that gold really hit its stride, and particularly during the period from 1870 to 1914 that it really demonstrated its ability to drive economic progress.
Anti-gold economists like to claim that the gold standard “failed,” but it really didn’t. The gold standard was killed by governments that didn’t like the strictures it imposed on their ability to spend money. The gold standard was done away with in order to fund World War I, and it never recovered.
It survived as a gold exchange standard after World War I and then into the Bretton Woods system, but governments never allowed a real gold standard to establish itself. They attempted to control gold markets and the gold price, without success. And when the last link between the dollar and gold was severed in August 1971, gold’s foes thought that was the final death knell for the yellow metal.
In reality, the gold price took off in response to President Nixon’s actions, growing more than tenfold in value over the rest of the decade. It has continued to climb since that time, shaking off repeated attempts on the part of central bankers to control its price and minimize its role in the international monetary system.
There’s a reason gold has stood the test of time. No amount of concerted government action will be able to overcome gold’s appeal to investors looking to protect their wealth, and no amount of government action will be able to overcome gold’s continued growth in value.
2. Gold Has Zero Yield
Gold opponents such as Warren Buffett like to claim that gold is an inferior investment asset because it has no yield. It sits there not earning any returns, unlike stocks that can yield dividends, or bonds that earn interest. But in today’s investing environment, that zero yield can actually be a plus.
We’re living in an age of low interest rates and negative yields on many assets. There are trillions of dollars of negative-yielding bonds in markets today, meaning that investors are willingly paying to hold assets that will lose value. That’s absolutely nonsensical, but it’s the reality of the modern era. Compared to those negative-yielding bonds, gold’s zero yield is a serious advantage.
There’s also the high likelihood that stock markets will crash in the near future, as stocks are overvalued and in the middle of a bubble that looks set to rival the dotcom bubble in its size. If stocks end up in a severe correction, investment returns for investors could be negative for years to come, meaning once again that gold’s zero yield will be a more attractive investment option.
3. Gold Defends Against Inflation
With so much new stimulus spending and debt issuance, the Fed has stepped in and monetized much of that debt. Unlike in the 2008 crisis, when the Fed sterilized its monetary injections by raising interest paid on reserves, the Fed hasn’t attempted to keep its latest monetary creation from entering markets. The result has been a massive surge in the money supply, with M1 increasing nearly 70% last year and M2 increasing nearly 25%.
You’ve probably read numerous mainstream financial media articles claiming that inflation won’t be coming, but that’s just wishful thinking. Inflation always lags money growth to some extent, as it takes months for newly created money to make its way through the financial system and impact prices. It’s all but certain that the trillions of dollars that have been created so far will continue driving up prices throughout the economy. You’ve probably already seen grocery and gas prices increase, and they’re not done rising.
Gold can help protect investors against inflation because it maintains its value and purchasing power over the long term and rises in value during times of high inflation. During the same time period that gold grew tenfold after President Nixon closed the gold window, the consumer price index (CPI) doubled, meaning that gold grew at a rate five times faster than inflation.
Gold can also grow faster than stock markets too, such as over the past 20 years, when gold has handily outgrown stocks. Ultimately the decision to invest in gold comes down to a judgment call. If you believe that the US economy is on the verge of another 1980s/1990s bull market with 15% annualized returns and rapid economic growth for the next decade or two, then gold might not be your first choice. But if you foresee a stalling economy, a major stock market correction, and rising inflation, then gold may be one of the better performing assets in the coming years.
Protect Your Assets With Gold
If you have assets you’re looking to protect, then maybe it’s time to start thinking about buying gold. With the rising likelihood of a stock market crash, rising inflation, and subpar economic growth, the opportunities to continue growing your assets could be limited. The name of the game will be asset preservation rather than asset accumulation. Those who lose the least money in the coming years will likely be those who come out ahead.
Strategic purchases of gold could help protect your assets in the current and upcoming economic climate and could even help you to grow your wealth if the gold price really takes off. The best part is that investing in gold can be done with relative ease today with all the gold products and investment vehicles available to investors.
A gold IRA, for instance, allows you to invest in physical gold coins or bars while still enjoying all the same tax advantages as a normal IRA retirement account. You can even protect your existing retirement savings by rolling over or transferring assets from a 401(k), 403(b), TSP, or IRA account into a gold IRA.
There’s no reason to leave your wealth at risk from a weakening economy, rising inflation, or a stock market crash any longer. Get in touch with the experts at Goldco today to learn more about how buying gold can help you safeguard your wealth.
is America's Gold IRA Expert, CEO of Goldco Precious Metals, and holds a position on the Los Angeles board of the Better Business Bureau.
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