If you haven’t held any gold in your portfolio — and have been beating your head against the wall as the precious metal has risen 133% since early 2008 and tripled since early 2006 — it may not be too late to jump in. Even as gold in recent days has quietly risen closer to the $1,800-an-ounce mark again, there are several overarching and compelling reasons to allocate some of your investment dollars to the yellow metal.
Inflation had been almost nonexistent since late 2008, and the U.S. even experienced deflation in 2009. In the 28 months between November 2008 and January 2011, inflation popped over 2% only six times. Since January, however, inflation has jumped from 1.63% annually to 3.87%.
Inflation results from creating too much money, and ever since the present Administration got into power, more money has been printed than any other time in U.S. history. It takes some time to see the results, and now they’re showing up. Producer and food prices have also been rising. You may not have noticed it, however, because food companies don’t always raise their prices — they just shrink their container sizes.
Gold is an actual physical asset, just like real estate. It has intrinsic value. Some say it’s an inflation hedge, but over the long haul, that isn’t always true. I view it as a crisis hedge — and I see us in a major crisis regarding the devaluation of the dollar and significant inflation. The more the dollar weakens, the more of those dollars it takes to buy things. There’s also no end in sight to outrageous levels of government spending that’s been going on for years. Again, this is being done with money printed out of thin air, making those dollars worth less and less.
Devaluing the dollar creates another effect: Central banks around the world are less eager to hold dollars. Since the dollar had always been the world’s premier currency, the only asset beyond that is physical gold. That creates demand, and the more demand, the higher the price of gold.
There are a few other reasons to own gold. It’s the most liquid of the precious metals, so it’s easy to buy and sell. It’s safe from political instability, at home or abroad. And all of these things are going to be factors for a very long time.
So, what are the best ways to own gold? You can buy it via various stock investments. Numerous ETFs are available, of which the most popular is SPDR Gold Shares (NYSE:GLD), which actually holds baskets of physical gold. Beware, however, that gold is considered a collectible and is taxed differently than a stock investment, and that difference does apply to this ETF.
Another increasingly popular way is to own the metal yourself. Yes, you can do that, and it isn’t as difficult as it used to be. You’ve probably heard all the radio commercials about buying gold bullion or coins. That actually works. In fact, DGSE Companies (NASDAQ:DGSE) recently completed the acquisition of Southern Bullion Trading Co. — a subsidiary of gold refiner and market-maker extraordinare NTR Metals. DGSE has a few Bullion Express stores open around the country, with dozens more set to open in the very near future. They’re aiming to become the brand name in physical gold trading. Find a store, and buy your gold.
As with all investments, you don’t want to go hog wild and buy gold to the exclusion of other investments. However, gold certainly has a place in a diversified portfolio.
Lawrence Meyers owns shares of SPDR Gold Shares.