Every 15 minutes it seems that there is an ad on the radio to buy gold. That kind of continual hype should be a red flag in itself. Just like there used to be ads about easy riches in flipping houses…. True, gold has had a nice run up in recent years; but it goes up and down like everything else! Although it has been a store of value over the very, very long term (i.e., longer than a lifetime!), it has gone through very long periods where it lost value in real terms (i.e., after inflation). For example, gold traded at $850 per ounce in 1980, then traded at only $900 per ounce in 2009 – 29 years later. (And, in fact, dropped to $343 in the interim, in 2003!) During those 29 years, inflation averaged 3.55% per year. So the real, purchasing price “value” after inflation was only $315 in 2009!!
I read a practical example that stated it would take the same amount of gold to buy a good suit of clothes today as it would have in 00 AD! Essentially kept up with inflation, and no more.
While it is wise to invest a portion of your money in something that often moves independently of the financial markets and also serves as protection against inflation, academic research shows that a broadly diversified basket of commodities is typically better than gold. In fact, many of our clients’ portfolios include about a 5% allocation to such a basket of commodities.