Investing in Gold (Overview)

We love gold investing and we are happy to share our knowledge with you so that you are an educated investor.  There are 3 main pathways by which you can invest in gold.  You can buy the metal itself, you can purchase exchange traded funds (ETfs), and you can buy stock in gold mining and refining companies. 

Gold has been a store of value (SOV) for millennia; SOV means that people have held their wealth in the form of gold.  Currently 47% of all gold is held in jewelry form, while only 21% is in investment form.  This gives gold an intrinsic value. 

Some Gold History

Gold has been used as a form of currency since 560 BC, when stamped coins were used for trade instead of jewelry.  Gold grew in popularity for trade, commerce, and wealth throughout Asia, Europe, Africa, and the New World.

The US tied its paper and coin currency to either gold or silver in 1792, this ‘bimetallic’ standard backed all currency with the two metals.  The paper currency and coins were just a representation of the metal held in the bank vault. 

This started to change in the 20th century, first with the 1913 creation of the Federal Reserve.  The second was in 1934 with the Gold Act that gave ownership of all gold coins to the US government and stopped mining of gold for coins.  Finally Richard Nixon in 1971 ended the gold standard and the US has had fiat (backed by nothing) currency since.

All world currencies have done the same and fiat is the standard.  None the less, central banks, the World Bank, and the International Monetary Fund IMF hold gold amounting to 17.2% of the above ground stocks.  The demand for gold is still strong and though many are not buying the metal itself, the same money is going into gold ETFs

Gold Increases Value

Over the years gold has held or increased it value, this makes gold an inflation proof investment

Fiat paper currency cannot by its nature do the same.  When the US got off the gold standard in 1971, an ounce of gold was $35.  It is now $1785.  With Inflation in 1971 for $35 you could purchase $225 worth of goods and services in today’s dollars.  That is assuming you held the money in a savings account that was paying the inflation rate.  You would be much better off if you had bought an ounce of gold. 

The Dollar’s Decline

Now more than ever there are concerns about the value of the US dollar.  The FED has been printing money which erodes the dollar with inflation even faster.  With the uncertainty of recession and a crisis like COVID-19 investors will see their cash and other investments lose value, and switch to a hard asset like gold.  Additionally gold benefits greatly from a dollar decline, because it is tied globally to the price of the dollar.  The reasons for this are first, investors must sell their dollars which is the only thing that can be used to purchase gold.  This action of diversification lowers the value of the dollar.  Second, with a weaker dollar, the price of gold relative to other currencies is also cheaper, increasing the demand to purchase gold with those currencies. 

Geopolitical Risks

With political uncertainty comes risk.  The rising tensions that have been built in the Middle East, between the Koreas, in the South China Sea, and Africa, as well as between NATO Countries and former Eastern Bloc nations, humans have consistently had fears of the future or in some cases the present.  Gold has remained a safe haven that is easily portable and in general can be converted.  The greater the uncertainty, history has shown that holders were able to protect their wealth and in some cases even buy their way out of problems. 


Because of golds nature to gain value during economic downturns and to be resistant or even counteract the effects of inflation, by investing in gold as a portion of a portfolio, investors have used gold to strengthen their total holdings and reduce the overall risk. 

Golden Opportunities

Growth investors are usually attracted to gold stocks and especially ETFs because they will generally rise and fall with the gold price and not pay dividends that income investors are searching for.  But, mining companies that are well managed can still be profitable when the price of gold falls, and be even better when the price does increase.  Just a small increase in the price of gold will cause the price of a mining stock to have an even higher return than that to be found with the metal or ETFs alone.

Gold stocks that have paid dividends have historically resulted in higher gains than the rest of the sector as well.  This can help the growth investor, when they are still able to gain from the stock price as well as obtain a dividend.  And on the back end, when the sector is in a downturn dividend paying stocks usually hold their value better because these stocks are usually managed quite well

Gold Mining Stocks

Mining stocks are usually quite volatile.  Investors must consider the company’s performance and the dividend payout reliability.  If the company has low debt levels they are more likely to pay a dividend, assuming their cash inflows and capital investments allow it.  One should think of miners on the long term as they require large upfront investments to get the yellow metal from the ground. 

Different Ways of Owning Gold

There are several ways to invest in gold and we are able to help you with all of them.  The best way for you depends on your circumstances and goals, some of these are:

  • Gold Futures
  • Gold Bullion Coins and Bars
  • Gold Stocks
  • Gold ETFs
  • Gold Mutual Funds

When Should I Put Off Investing In Gold? When Is It A Bad Time To Invest In Gold?

Looking at the past 30 years we see that gold will consistently leave and come back to stocks

S&P 500, the Dow JonesGold, and Silver

Because gold is lower we see that currently gold will either increase in value and catch stocks or stocks will fall back to gold, or a combination of the two.  Whichever is the result it is now the time to be in gold.

The graph shows that gold is not always a good investment. The best time to invest in any asset is when the market has negative sentiment and the asset is priced low, allowing for potential gains as is currently indicated.

Previous Post
Newer Post