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A (Golden) Nugget of Wisdom

A (Golden) Nugget of Wisdom

April 23, 2024

Recently, I've seen more than a few outlets covering gold's increase in value. Although it's true that the commodity recently reached a record high, it's essential to understand what factors are driving the most recent rally that started in late February.1,2

Gold has grown over 10 percent in more than 30 days thanks to increased central bank buying, growing international tensions, and boosted demand, which has caught the attention of some on Wall Street.1

In this instance, when I’m speaking about gold, I’m talking about spot prices for the precious metal, not the commemorative bullion you see in television advertisements.

However, while gold may be having a moment, I can't help but think of Warren Buffet's thoughts on the subject. In 2011, Buffet suggested that investors could choose to buy all the gold currently in circulation or use that same amount to buy all the cropland in the U.S. and still have enough left over to purchase a major company 16 times over.2,3

If the investor bought the farmland, they may be able to reap the financial and agricultural benefits for a very long time. In contrast, purchasing gold for the same amount would result in owning that same amount of gold and nothing more. In other words, one strategy looks to grow your wealth over time, while the other merely holds an asset with the expectation that it may appreciate over time.

Personally, I don’t believe in gold as an allocation strategy, mainly because much of the pricing is based on the emotions of investors and what someone’s willing to pay at that time. It may seem easy to get in with the tide since the news covers it well, but it’s hard to know when the tide will go out. I feel it’s more of a timing trade, not a long-term strategy. While you can achieve some degree of diversification through ETFs, stocks and mutual funds, you’re still buying the financial asset: many times simply the common stocks of companies that deal in precious metals. If true diversification is what you want, the value is in the metal itself.

If you’re thinking about gold as a potential investment, it’s worth a conversation to talk through pros and cons.

More than anything, just remember: right or wrong, the herd doesn’t care about you

Questions? Let's chat. 

1. Reuters.com, April 3, 2024. "Gold Extends Record Run on Firm Safe-haven Demand, Rate Cut Hopes"
2. The price of gold can be affected by developments such as currency devaluations or revaluations, central bank movements, economic and social conditions within a country, trade imbalances, or trade or currency restrictions between countries. There is no guarantee that gold will maintain its value or purchasing power in the future. Gold and other speculative investments are not appropriate for every investor.
3.. Cnbc.com, April 1, 2024. "Gold prices are at an all-time high—but experts like Warren Buffett don’t always recommend investing"