As we march towards another presidential election cycle, and exist in perceived uncertain times, the “Gold bug” mindset has risen in popularity again as folks are bombarded by advocates for the lustrous yellow metal. Gold has been incredibly important to societies worldwide for over a millennium, and today we will talk through a bit of the history as well practical considerations for and against owning gold.
A Short History of Gold in America
In 1492, Columbus sailed the ocean blue… and asked Bahamian natives whether there was any gold in their lands. From our earliest origins as a colonized landmass, up through the gold rushes of the 1800’s that ushered in great migrations to the west coast, the Americas have had an obsession with finding gold and using it to reach prosperity.
On the government side of things, we used precious metals as a standard for valuing the dollar and made it a pure gold standard with the coinage act of 1873, and that standard lasted until 1933. During most of this period dollars were on a gold standard, and any person could buy or sell gold at a rate of $20.67 per ounce to the treasury. Following the Great Depression in 1933, Franklin Delano Roosevelt issued an executive order making private gold ownership illegal and bought gold back from citizens at the $20.67 conversion rate per ounce. Those caught “hoarding gold” could face up to 10 years in prison!
For the better part of the next 40 years, the United States dollar was in a quasi-gold backed system before Richard Nixon fully abolished it in 1971, moving us to a full fiat-based currency. Fiat means that the dollar is backed by the strength of the American economy and government measures like printing money or enforcing our will on the global stage through diplomatic/military actions.
Is Gold a Good Investment Versus Stocks?
Despite what the commercials on TV and pop-up ads on the internet say, gold has not always been the most profitable or secure store of value. Following Nixon’s abolishment of the quasi-gold standard, the price has soared, cratered, and soared again. You can view this volatility on Goldprice.org. One major drawback of gold is that it does not pay a dividend. It can only be a lump of metal waiting for the next buyer. There is a lot of nuance when comparing and contrasting the returns of stocks versus gold through time, and this article from Investopedia does a great job of laying out the various considerations when comparing the two.
However, compared to the dollar, there may be some value in gold for the type of person who wants a “store of value." In other words, owning physical gold might be a fallback in a doomsday scenario where the dollar suddenly loses its value. We at the Ansardi Group do not foresee an impending end times situation where gold is the last bastion of value but acknowledge the appeal it possesses for many as a way to hedge their bets.
Beware of Gold Investment Scams
Buying physical gold is typically straightforward. A person goes to their trusted gold dealer and takes delivery of actual bars or coins. A savvy investor will review spot prices of gold, recent transaction prices of specific collectible coins, and then make their purchasing decision based on what is available.
Alternatively, online gold investment companies have blanketed the internet in recent years, and there’s reason to be skeptical of them. The hard selling tactics aim to separate potential customers from their money by preying on their dire need to feel less confused and uncertain. However, gold as a commodity is far less stable than the dollar, so if anything, it’s more of a gamble than a sure thing. Last year AARP published a short article detailing the rise of precious metals scams that are selling people gold and gold coins at as much as a 300% markup over its actual value!!! To put that in dollar terms, how would you feel about giving a “gold IRA” company $100,000 to build you a portfolio of gold coins, and later find out its real value was closer to $33,000?
In conclusion, if you are the kind of person that wants to have gold as part of your investment portfolio, this is an area that The Ansardi Group can help educate and guide you on. While we do not buy or sell physical bars and coins, we do have access to investment vehicles that will give you an ownership interest in precious metals within a traditional investment account. We believe that diversification is a key part of preparing clients for success, and for some people gold may be a part of that formula.