Is Gold The Answer? First, What Is The Question?

by | Jun 12, 2023 | *Financial Awakenings, Building Wealth, Investment, Money Psychology, The Economy, Weekly Column

I’ve noticed recently that news and commentary programs are being inundated by ads with dire warnings of the imminent collapse of the US economy and the dollar.

  • “Are you worried about the value of the dollar? Protect your wealth and safeguard your financial future. Invest in gold!”
  • “Don’t gamble with your finances—choose the proven safeguard of gold.”
  • “The fate of the US dollar is uncertain. With ballooning debt levels and a struggling economy, experts warn that a collapse could be imminent. Protect yourself by investing in gold, the ultimate hedge against economic instability.”

The ads must be hitting home. I’ve had several inquiries wondering if selling out of a diversified portfolio and going to gold would be a good idea.

The short answer might be “yes”—IF the US economy were going to collapse. IF the value of US businesses and real estate should plummet, then going to gold is a great move.

The real question, though, is, “What is the actual probability of the economy collapsing?”.

“The last few years have tempted investors to take part in a modern gold rush. The precious metal is thought of as a safe harbor for investment capital during times of economic and political unrest and chaos.” I wrote that in 2012. I write something similar every few years when the “invest in gold or face financial disaster” ads proliferate.

Clearly, the primary selling strategy isn’t logic or facts. The purveyors of investing in gold are selling fear, trying to create a sense of panic and anxiety that can only be solved by buying gold. The only real financial security they’re concerned about is their own, so they motivate you to buy gold with manipulation, exaggeration, or outright lies.

Let’s look behind the curtain of fear about the dollar and our economy collapsing. These advertisements have been going on for years. I was a hard-core gold bug in my 20’s. I completely bought the notion that paper currency was going to collapse, along with financial investments like stocks. The only assets to survive would be gold, pre-1964 silver coins, and real estate. On January 14, 1980, when the price of gold was around $800 an ounce, I converted my paycheck into gold.

Over the last 43 years I’ve become older and a little wiser. I waited and waited for the US economy to melt down and the dollar to plummet. It never happened. Meanwhile, I saw my gold investment go from $800 to $2016.

During the same time, $800, adjusted for inflation, needed to grow to $3,119. Gold did not keep pace with inflation. On the other hand, an $800 investment in January 1980 in the S&P 500, those “terrible” paper financial investments, grew to $88,853 if you reinvested dividends. Yes, I checked that calculation three times!

Hasn’t gold done better in recent years? Yes. Over the past 10 years of economic trepidation and political uncertainty, a $1000 investment in gold grew to $1,478. Yet the same investment in the S&P 500 grew to $2,530.

Clearly, investing in gold has been an epic fail.

But we can’t look at the past, right? This time things are different, right? Only if you believe those who earn their living selling gold. However, the high probability is that they are wrong, and following their advice could be financially harmful for you.

Having said all that, if you are concerned about the economy, it makes sense to own some gold, silver, and cash as part of a diversified portfolio of investments. Understand, however, that it won’t produce a return for you. It is not an investment, it is catastrophe insurance. Its real value is not financial, but psychological.


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