Recent articles from publications such as Forbes and Investopedia suggest that gold is a strong investment choice. They claim that gold appreciates while the dollar depreciates, and laud gold as a “safe haven for investors.”1 Gold, according to these articles and many others, is considered a preferential method of investing when compared to the stock market.
There is a persistent illusion in the minds of the American public that gold is both preferable to long term investments in a diversified stock portfolio and that it is an effective inflation hedge.
It is important to immediately clarify that gold is not – in any sense of the term – an investment. Once purchased, it just sits there. It does not produce anything. Aside from being used in jewelry, gold only serves one financial purpose: acting as an inflation hedge. And how is that working?
The price of gold was fixed at $35per ounce from the end of the second World War to August 1971, when President Nixon took the United States off the gold standard. Nine years later, in 1980,gold had soared to $800 per ounce.
If you had bought an ounce of gold nearly half a century ago, in 1980, that ounce of gold would now be worth approximately $2,000. Its value would have increased about two and a halftimes. In the meantime, it did not produce anything – no interest and no dividends.
As compared to gold’s value, the Consumer Price Index has increased nearly four times its value in 1980. To keep up with that rate of inflation, that same ounce of gold purchased in 1980 would need to be worth $3,200. But its value is not even close to that.
Additionally, the value of the S&P 500 Index has increased thirty-nine times from its value in 1980. While the value of gold has increased a mere two and a half times, the S&P 500increased at an exponentially higher rate. This value does not include dividends, so that value is likely even higher than stated.
If you had reinvested dividends and left your $800 in the S&P 500 Index from 1980 to today, that investment would be worth just shy of $100,000. Compare this to the $2,000 that gold purchased in 1980 is worth today.
In light of these statistics, it seems to me that there is a clear answer to the question of whether or not gold is the best investment an individual can make.
If you have questions about how to choose investments that are in your best financial interest, contact our office at (469)212-8072 or gds@gdswealth.com. Our talented team members are available to help you construct a financial plan that will suit your individual needs and goals.
1 Forbes, February 2023.
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