Amidst the ongoing unrest in Ukraine and Israel, many are revisiting the idea of investing in gold. This post, an update on a previously discussed topic, aims to shed new light on the matter.
Before delving into gold investment, it’s essential to grasp the concept of commodities. Commodities like gold are basic goods used in commerce that are interchangeable with other goods of the same type. This interchangeability makes them appealing for investment. Gold, along with oil, natural gas, and various agricultural products, falls under this category.
Gold stands out in the commodities market due to its unique pricing dynamics, driven by supply and demand in spot and derivative markets. The SPDR Gold Trust (GLD) is a commonly used instrument for tracking gold prices.
Recent global events, such as Russia’s military actions in Ukraine, have heightened interest in gold, leading to a spike in its price. An accompanying chart illustrates the historical price movements of gold, silver, and platinum, adjusted for inflation, since 1970.
Before investing in gold, understanding its scarcity is crucial. Imagine all the gold ever mined fitting into a cube with dimensions slightly less than a tennis court, highlighting its limited availability and inherent value.
The economy’s health significantly influences gold investment. During prosperous periods, gold prices may level off, while economic downturns usually see a surge in demand and prices for gold. In times of financial instability or market crashes, gold is often seen as a stable asset. It’s also considered a hedge against inflation, maintaining its value even as the dollar weakens.
From my perspective, real estate is a more effective hedge against inflation, leveraging increasing rents and property values, and providing tangible benefits, unlike gold.
Gold’s pricing affects not just the economies of countries that import or export it but also plays a crucial role in currency valuation, impacting global trade and forex markets.
Adding gold to an investment portfolio can offer a buffer against volatility, a lesson underscored by historical trends post-World War II. Gold can protect against dollar devaluation and potential global crises, such as the current tensions in Russia.
For those interested in gold investment, options range from buying physical gold to investing in ETFs, mining companies, or mutual funds. It’s important to consider the fees associated with each option, particularly with mutual funds.
My personal investment strategy includes purchasing GLD and rare gold watches, drawing from my past experience in watch trading, which has seen appreciating values over time.
Gold IRAs are another avenue for those strongly bullish on gold, facilitating the conversion of paper assets into physical gold.
The supply and demand for gold have been out of sync, with production rates lagging behind increasing global demand, particularly from countries like China and India, pushing gold prices upward.
Even with recent price dips, owning a piece of the limited gold supply remains appealing, especially considering its proven resilience in uncertain times.
A comparison of the Gold ETF (GLD) with the Vanguard Total Stock Market ETF (VTI) over five years highlights the performance differences and responses to market uncertainties.
Diversifying investments is key to building wealth. Real estate offers a hedge against stock market volatility and a source of passive income. Platforms like Fundrise provide access to diversified real estate investments. Empower offers a comprehensive financial management tool, consolidating all financial accounts to optimize and monitor wealth. Investing in private companies in emerging sectors like AI, FinTech, and PropTech can unlock potential opportunities, akin to early investments in major tech companies.
