Is Gold a Good Investment?

If you follow the US or Canadian dollar, you know that it often fluctuates in value. A great deal of the change in price comes from what the government is doing with interest rates and inflation. With inflation, the dollar loses value, and as interest rates rise compared to other currencies worldwide, the value increases.

There are stories that someone left a wheelbarrow full of money near a store in countries with rapid inflation. Thieves stole the wheelbarrow and left the money because the money had no value.

Today in Argentina, the inflation rate is 211% per year. This represents how the value of their currency has dropped. It would take more than twice the money to buy food than the previous year. Over time, if this continues, their money will lose all value.

So, what does gold have to do with this?

Gold is one of the world's most accepted currencies. Regardless of the country, it can be used to purchase goods and services, and it holds in value when dollars or other country-backed money does not. Rather than the money, if you had gold in Argentina, it would take more dollars to purchase an ounce of gold, which would mean your gold retained value for you to be able to live. 

Gold is also used in many industrial applications including cell phones and other electronics.

It has also been used for centuries as an investment vehicle. You can invest in gold by purchasing publicly traded stock of the mining and royalty companies, purchasing certificates that represent gold, or buying the actual gold coin or bars.

I prefer to purchase the actual gold and store that in a safety deposit box. Banks still have those, and they cost from $35-$75, depending on the size of the box. 

You can order gold from the mint and send it to your bank for storage or from TD Bank, which has a similar system in Canada.

The downside is that gold does not pay you a dividend or produce any income while you hold it. The return over the long run is 7.78% which is quite good. Like most investments, you would have to accept great fluctuations where prices rise and fall just as they do with your other investments.

I utilize the harvest strategy I discussed in previous newsletters to produce cash. When the price of gold shoots up to a level that, in my opinion, is greater than the value, I can sell some and earn that cash, later purchasing it back as it fluctuates. Gold is not truly an investment, as, without the harvest strategy, it does not produce income.

If you will, it is an insurance policy should a world-changing inflation or catastrophic event occur. I think a goal of 5% of your assets in gold is an excellent thing to have. I avoid the stocks in gold companies and don’t trust the so-called certificates representing gold. I enjoy buying the real stuff. You can start by buying just a few hundred dollars worth or by the ounce that sells for over $2,700 each. Silver and other precious metals can be purchased, but for me, why not buy the most recognizable and sellable option of gold?

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