As I write this, the stock market has been reaching all time highs, partly due to Trump’s promises to lower taxes, increase our defense spending, bring jobs back to America, and spend massive amounts of money by making infrastructural improvements that will put many Americans back to work. With our current national debt above $17 trillion dollars, he promises to pay for it because our Gross Domestic Production will increase from 2% to 3% or more, which he says “will make it a whole new ballgame.”
More and more companies are using this political and economic uncertainty to market gold aggressively, urging us to “buy gold” because of coming inflation or to avoid a coming economic and geo-political crisis. They say it is not a matter of “if” but “when.”
However, just because people make big claims about the market, and about gold, that doesn’t mean their perspective is the only one, or that it’s accurate. As Proverbs 18:17 says, “The one who states his case first seems right, until the other comes and examines him.” In fact, there are predictions of gold going down right alongside predictions of gold going up.
So, is there a place for owning gold? If so, what is the best way to own it, and how much should you own?
I believe gold should be part of everyone’s portfolio, as part of an asset allocation plan. Let me explain why and how to take this step.
Why to buy gold
On the positive side, gold can protect part of your nest egg from inflation or geo-political risks. Those risks seem to be rising as our national debt goes up and political and economic uncertainties abound. Gold increased about 8% in 2016.
On the negative side, the dollar is one of the most stable currencies in the world, and gold doesn’t perform as well in a strong dollar environment. And gold tends to go down when interest rates rise, which is expected to happen soon.
Whether or not the political, geo-political risks, and coming inflation will offset the strong dollar and rising interest rates remains to be seen. No matter what happens, though, I believe that everybody should have 5%-15% of their investments in gold as a simple matter of diversification. By dividing your assets into different investments which are negatively correlated (move in different directions), you will experience less volatility (more peace and stability) in your portfolio. As Ecclesiastes 11:2 says, “Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land.”
How to buy gold
There are lots of ways to buy gold, some better than others. Here are a few tips to make wise decisions about buying gold:
The best way to own gold as an investment is to purchase the ETF (Exchange Traded Fund) with the symbol GLD. It’s a fund that most closely emulates the price of gold and is the least expensive way to own gold. You don’t have to store it, you can easily buy and sell it, and you can quickly exchange it for dollars. The primary risk in owning gold this way is if terrorists attack our stock market exchanges, which could prevent you from selling your gold for a period of time (and would make tip #2 below particularly valuable). Of course, other stocks wouldn’t be able to be sold either, so your gold ETF would probably be higher whenever you could sell it.
If you’re buying actual gold coins, you should buy at least some gold coins that are less than an ounce in size in case of crisis. Gold coins would give you something to use in place of money if there are massive power-outages that make cash from ATMs and banks unavailable. To buy gold (or silver), go to golddealer.com and buy at least some of the Swiss Franc, which is about a fifth of an ounce. You can buy one-ounce coins too, but they would be very difficult to barter with because they are worth so much. Smaller sizes have a little higher mark-up but are easier to use in crisis.
Avoid scams, such as the investment scheme going around now called Karatbars, which sells overpriced gold. Here are some ways to avoid scams:
Compare the price they’re offering to the actual value of gold by checking the continuously updated prices on the CNBC ticker.
Avoid people who sell gold but won’t buy it. These are not dealers – they are “sellers” just looking to turn a profit. A real dealer won’t contact you to sell coins. You have to contact them.
Look for dealers who don’t make a commission.
-Jerry