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Is Gold a Good Investment? Thumbnail

Is Gold a Good Investment?

Before, I get to the issue of investing in gold.  What is happening in your world today?  Physically? Mentally?  Emotionally?  We have someone in the office every day to answer the phone, open the mail, meet with clients who need to drop off paperwork or a check (all done in a socially-distancing manner).  Personally, Kathy and I are well.  She is back volunteering (mask on) at Safari Park and we are both in the fire lookout tower a few times a month.  

Time is flying by.  Hard to believe that March 24 was the first day working from home. It cannot be the first week of August already.  What happened to June and July?  

After Kathy and I walk the dog and sit down for dinner together, the conversation occasionally turns to the blessings of our life today.  We have a home.  Our kids and their spouses all have jobs and homes.  Grandkids are healthy.  Siblings are well.  

I know many of you have been challenged during the pandemic.  I know how easy it can be to let this crazy world today bring you down.  Sometimes my “monkey mind” runs from the stock market, Covid-19, feeling sorry for myself because I haven’t seen the grandkids since last year, worry about recent family health issues, etc, etc, etc….The “monkey mind” is fed by TV, radio, internet, to the greatest distraction of all is the “smart-phone.”  The smart (dumb) phone with those “blankety-blank alerts:  news, text messages, emails, Facebook, Instagram, Twitter.  As if my mind is not running amuck on its own, the phone keeps feeding it new reasons to go even crazier.

Some potential solutions to being overly stimulated by your phone could be:

  1. Turn off the alerts.  

  2. Don’t have the phone nearby when you eat a meal.

  3. Don’t have it in the same room you sleep in.

  4. Leave the phone in another room when watching TV or a movie.

  5. Go for a walk or round of golf without the phone.

  6. Turn the phone off for an hour; two hours; a day.  How do you feel?

    • If you were anxious or nervous and kept reaching for it, how does that make you feel?

    • Schedule times to separate from the phone and times to check it.

Sometimes, we all need human contact.  A conversation.  A hug.  Seeing a loved one. A conversation and making eye contact with a stranger (even if wearing a mask).  If you want to talk or ZOOM, give me a call.  My office day is Thursday or you can call me on my cell 760-518-8545.

Now Back to the Question: Is Gold a Good Investment?  

It depends on what you mean by good.

Historically, the price of gold was about $760 per ounce in January 1980. (1)  However, if the price is adjusted for inflation (CPI), gold prices were $2,246 per ounce in January 1980. (2)

Plenty of bumps up and down during the last forty years.  Gold dropped to $738 January 1985 and then up three years later to $981 and then plummeted to $390 by April 2001, exploding to $2,076 by August 2011.  All numbers are inflation adjusted. (2)

Why can gold be so volatile?  “Gold bugs” tend to be promotors of paranoia and fear with an agenda of getting people emotional charged enough to buy gold as is discussed in further detail in the article from Slate.com.  (3)

The gold price closed at $1,975 last Friday, July 1, 2020. (2)  

For the last forty years, the price of gold has changed from $760 to just under $2,000.  At first glance, this seems like a great return.  However, if the 1980 price is adjusted for inflation, the $760 price would be $2,246.  Therefore, today’s price of $1,975 is in reality less than it was in January 1980 after considering the effects of inflation.  

Did you really make money owning gold over these forty years.?  Or merely maintain the buying power of your money?  Nope, over forty years, after factoring in inflation, the price of gold is down about 12%.  ((2246-1975)/2246).

If you wish to speculate with buying gold over a shorter time frame, you have the possibility of making a profit.  No guarantees.

The return of the S&P 500 ® ,  from January 1980 through June 2020 is 2,717.6% (or 8.61%/year).  After adjusting for inflation (CPI), the return is 754.956% (5.45%/year). (4)

The Takeaway

Now allow me to speak English.  Suppose you purchased $10,000 of gold in January 1980 at $760/oz (you bought 13.16 ounces).  Today, those 13.16 ounces are now worth 25,987 $$.  But don’t get too excited, those 25,987 $$ will only buy what $8,795 would buy in 1980….adjusting for inflation.  Remember, gold lost purchasing power from 1980 through July 2020. (2)

As an alternative, assume you invested your $10,000 in a portfolio of stocks or mutual funds that is identical to the S&P 500®,  (since you cannot invest directly in the index) in January 1980.  The actually buying power of the original $10,000 invested in 1980 now has a buying power of $75,495. (4 & 5).  If all that math just confused you, call me and I will help you to understand.

Contact

  1.    https://sdbullion.com/gold-prices-1980

  2.    https://www.macrotrends.net/1333/historical-gold-prices-100-year-chart

  3.    https://slate.com/business/2013/06/gold-bubble-paranoid-investors-pushed-gold-to-1900-an-ounce-in-2011-but-the-bubble-has-burst.html

  4.    https://dqydj.com/sp-500-return-calculator/

  5.     https://www.macrotrends.net/2324/sp-500-historical-chart-data


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