The short answer is, yes!
Nowadays, as always, when a commodity enters new all time highs, many recommendations shows up for that commodity. But for reasons given below one should always own gold.
Any person who wants a diversified portfolio, a.k.a a well-balanced healthy portfolio, should always own gold! It has been a trustworthy holder of value for mankind for thousands of years and will probably be that for the remaining of yours and my life. It may not always have been the best investment, but that is not what you are primarily looking at when buying gold.
Do you have a home insurance? Yes? Well, that is not a good investment either for the average insurance buyer, but you still want it for security if something goes really bad. Same thing with gold.
If the currency, banking or financial market, that we so much depend upon will crash, and it will someday, people will seek the most long-lived currency available. And that is gold.
But the gold price has risen so much, is gold still worth buying?
I do not agree that a certain investment is bad because it has risen a lot, but I agree that when things look gloomy it is a good time to take on risk, and when things look good you should be more risk avert. Those times are when you get the best prices for each of those investments. And looking at the media for the last year or so, things look pretty bad, and for that reason people may have overinvested in gold.
However, I do not think that the economical damage is taken as seriously as it should be by the majority of todays actors. People still have a deep belief that governments and the whole system can heal our financial markets by known measures, such as bail-outs, interest rates cuts, lending, spending, and now, paradoxically, saving. So yes, it is always important to have gold in a balanced portfolio, especially since this post is about owning gold as a financial insurance.
How much gold should one own at any time?
That is totally depending upon your risk aversion or your need for safety. Somewhere between five and twenty percent of your wealth should be a good estimate. Note that when we talk about these percentages of a person’s wealth one most include real estate and other illiquid assets, such as partnerships/businesses.
Note that this is about buying gold as a financial insurance. So do not wait until you think you can buy it cheaper, buy it because you want safety and want to be ready if something happens quickly.
If you still feel secure about your wealth and income and only want, let us say, a 5% long-term investment, but still want a 10% speculative holding, you may of course buy that 5% percent now and wait until you get your trading signals or whatever you use to buy the speculative holding.
How can a small gold investment of 10-15% be good enough if things go bad?
It is impossible to give a scientific value. Because in economics you cannot do that most times. That is the downside of economics, but also the reason the be cautious when taking financial decisions. But let us say that things go really bad and currencies all over the world run into hyper-inflation, then gold may not raise a hundred or two hundred percent it may well increase tenfold. That is not unlikely at all if people lose their faith in fiat (paper) money.
Pre-crash you own:
Money, Stocks, Bonds: 850
Total investments: 1000
Boom! A financial crash occurs! Your investments are down 75% in just a few days. All people seek the best storage of value. Gold quadruples.
Post-crash you own:
Money, Stocks, Bonds: 213
Total Investments: 813
Even if you have a slight decrease of your wealth it still looks a lot better than if you have not have owned gold, and more importantly compared to your neighbors or society as a whole you are not ruined.
Can one not buy a house instead of gold to preserve wealth in an inflationary environment?
Sometimes you can, but a house is not a liquid asset someone can bring with him. And that is a real disadvantage in times of financial crises. Economical and political turbulence may make people want to relocate. Maybe your country is going down harder than others. Maybe there will be tough to get a job where you live. Even if that will not be the case, your presumed house buyer may have these doubts and that will be reflected price.
Should I buy real physical gold or can I buy it electronically?
Some people reason that if you want to be really safe, you should buy physical gold and hide it in a safe place. That is good if things goes bad quickly and you do not have a few days to cash out your electronic accounts. Fine, then buy it and dug it down in your garden. But be sure to make a pirate map for your kids if you should get a sudden heart-attack. If you are careful you can buy it on the financial markets first and then change to physical gold when you think that it is not safe to trust your broker.
How can one easily invest in Gold?
You buy gold on futures through Comex (only big professional accounts for traders) in the US, or you can buy through LMAX if you click on the banner on the top right side of this page or click here.
Remember, as a long-term investment, it may not be the best. Actually it have not been good for many decades as you can see in this inflation-adjusted chart below. But as an insurance for the smart investor, it as a must-have.
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