Time to Invest in Gold?

Article by: Brad Eaton

Vice President, Investment Services

During a recent investment review meeting, I was asked by the client, “What about gold?”. In fact, I’ve had many similar inquiries throughout the course of my career.

Each time I’ve received a question concerning the use of gold as an investment, I’ve asked the client what it is that prompted them to inquire. In many cases, it’s the advertisements that flood the cable news networks.

Commercials promise something along the lines of “safety and stability during this time of uncertainty” while often referencing the volatility of the stock market. They may speak to the benefits of tax-deferred growth using a gold IRA.

Anytime the financial markets experience periods of volatility or the economy is at risk of (or in) a recession, the discussion of gold begins to heat up.

It’s always important to understand the context in which someone is considering the purchase of gold. Does that individual perceive gold as a store of value during times of inflation or economic crisis? Are they concerned about financial and/or political instability? Or…do they see value in gold as a long-term investment? Usually, it’s one or a combination of these.

As an investment, gold has failed to keep pace with equities over the long run. One dollar invested in the S&P 500 at its inception in March of 1957 would be worth approximately $94 today. While over that same period, one dollar invested in gold would now be worth approximately $54. Additionally, unlike stocks and bonds, gold does not produce a stream of income through interest or dividends.

As a hedge against stock market volatility, gold has mixed results. During the early stages of the pandemic shutdown in March 2020, stocks fell by more than 30%, and the price of gold remained relatively unchanged. However, between March and November of 2022, gold suffered a drop of almost 19%, while at the same time, stocks (as measured by the S&P 500) were down only 10%.

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Advertisements for ‘Gold IRAs’ try to sell the benefits of tax-deferred growth. But what they don’t tell you is that all IRAs benefit from tax-deferred growth. They also don’t tell you about the costs associated with storing and insuring the physical gold or the transaction fees for buying and selling. These fees can often run much higher than those associated with traditional investments.

This is not to say that gold is inappropriate for everyone. It is important, however, to consider the pros and cons relative to your unique situation. And to understand the alternatives that are available.

If you have any questions about whether investing in gold is appropriate for you, please reach out to your planner.