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Today’s Best Investment – Gold?

Last update on: Jun 18 2020

A plurality of Americans believe gold is today’s safest investment, and by a surprisingly wide margin, according to a Gallup poll. This is the second consecutive year the poll had this result, though the number in favor of gold declined from 34% to 28%. The poll leaves a lot of questions unanswered. How do Americans determine the best investment? What time frame are they considering? And why is gold favored by a plurality? Do all those favoring gold have similar reasoning, or are there different reasons investors favor gold? You can find a good discussion of the poll and of gold in general at the link.

I view gold as a currency substitute and a hedge against some types of crises. When central banks and governments are debasing their currencies, as they have for most of the last 10 years, investors notice and increase their holdings of gold. But expanding middle classes, especially in China and India, boost demand for gold for non-investment reasons. Gold is used more in jewelry and in daily items than it is in the U.S. in a number of countries.

For the past thirty years, whether you made any money investing on gold has depended greatly on when you decided to buy it. In that respect, it’s been like any other asset. The graph below charts the price per ounce in dollars since 1970. Currently, Gold is selling at $1,649 per ounce, down from a nominal peak of $1,895 last September. And as Bloomberg pointed out back in 2009, people who invested in gold at it’s last peak, in 1980, would have gotten a better return on an interest-bearing checking account. But if you bought gold at the low, low price of $277 in 2000, you’ve done fabulously, earning a 495 percent return. If you’d parked your money in an S&P 500 Index fund, you’d just about have broken even.

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