“David, Should I Buy Gold?” Part I of II
That’s one of the most consistently asked questions I’ve heard over the last twenty years. I understand the question very well; in fact, I understand the question behind the question. Let me explain.
Gold has been sought after for thousands of years. It has always been considered valuable, and not just as a form of currency. Beyond its scarcity and beauty, it also has many industrial and manufacturing uses. With all that said, why do investors and individuals buy gold? Each buyer has a particular reason. Let’s take a quick look at each type of gold buyer:
First, is the Collector; this is probably the easiest one to understand. If you like gold coins, and you like to buy them even more, then have at it. I collect vintage cuff links and ties. We all have our thing.
Second, is the Survivalist. This may be an over-simplification, so I apologize in advance if I offend anyone. Some people buy gold because they believe our financial system will collapse and paper money will become worthless. Personally, I don’t think our system will fail or that we’ll have a barter economy, but I respect those who hold this opinion. Again, no judgment here.
The third type of gold buyer is the Speculator. This is an investor who believes that gold is going to go up significantly in value in the future and he/she is willing to “bet” on it. Investors wager on all sorts of things, including the price of oil, bacon, and orange juice, so why not gold?
Fourth on our list is the Inflation-hedger. I could tell you that gold might help to fight inflation, but how much depends on what is causing the inflation and what is happening with our overall economy. Historically, other investments, like the stock market, have been a better hedge against inflation, in my opinion.
Akin to the Survivalist, the fifth gold buyer is what I call the Uncertain. This person is worried and anxious about his/her financial future, the economy, or our nation’s debt, and that causes him/her to gravitate toward the perceived safety of gold. The folks that sell gold stoke and capitalize on these worries. You’ve seen the TV commercials, right?
Back to the original question: “Should I buy gold?” I’ll answer that next week!