Is Gold a Good Investment? (Part 1)

“Mr. Bond, all my life I have been… in love with gold. I love its colour, its brilliance, its divine heaviness… I ask you… is there any other substance on earth that so rewards its owner?”
– Ian Fleming, Goldfinger


People have held and invested in gold since long before our U.S. dollars existed. Gold is mentioned as a valuable and precious metal in ancient texts and scriptures, such as those describing the gifts that the wise men  offered to the baby Jesus. It has been traded as money and it has been used to back the value of currencies. It is used to craft fine jewelry and in the circuit boards of mobile phones, due to its ability to conduct electricity even better than copper.


But is gold a good investment today?

In the book, Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown, the authors predict more market crashes, followed by runaway hyperinflation. Their prescription? Readers are instructed to sell most of their assets to buy as much gold as they can (as well as the author’s financial advice).

Is this true, or simply a hyped-up scare tactic to make some sales?

What is definitely true is that our financial institutions are no more stable than before the 2008-2009 crash, as nothing has fundamentally changed. It is a fact that Americans are losing faith in the stock market and other typical investments. And many are listening to predictions of the contrarian economists and investors who are warning all who will listen.

We are also concerned about inflation,  which we believe is higher than the government would like us to believe. And we share this skepticism about the market and advise our clients to not put any new money into mutual funds or other investments related to the stock market. But where can you put your money, if not in the mutual funds that everyone else seems to be buying?

We get questions all the time about gold and other precious metals. Our clients want to know –

“If the economy crashes, will gold be a good investment?”

“Should I have precious metals such as gold and silver in my portfolio?”

“Should I buy gold as a hedge against market instabilities or the devaluation of the US Dollar?”

Answers to such questions involve personal choices and preferences. However, listening to hype and scare tactics won’t be as effective as measuring any potential investment against the 7 Principles of Prosperity.  When we look at gold through that lens, it becomes much more clear.

Prosperity Principle #1: THINK from a Prosperous Mindset.

Will investing in gold help you or hinder you in having a prosperous mindset? This is an individual matter, and the answer won’t be the same for everyone.

If it makes you feel more prosperous and secure to have some gold coins in your safe, then we recommend doing so, in moderation. Stick to gold coins of known weight – coins would be the most easily tradable or sellable form of gold. We do NOT mean collectible rare coins, which are collected more as antiques than as coins that are “worth their weight in gold.”

As the article “Investor Beware – Numismatic Collector Coins”  reveals,it is commonplace for all types of investors to make the mistake of purchasing collector coins. Why is it is a mistake? We’ll let explain:

We must define numismatics and explain the positive qualities of collectable coins, yet why we believe they make poor silver and gold investments for the average investor.

Numismatics is defined as the study or collecting of coins, medals, paper money, etc.  Numismatic is the proper term for collector coins having added value to their collectors as beautiful, old, precious items, in addition to the value of the metal they contain.

There are three “layers” of cost built into the price of a numismatic coin: metal content, numismatic premium, and dealer profit.

This in contrast to bullion bars and bullion coins, which have only two layers of cost: metal content, and dealer profit.

We think of numismatic coin collecting in terms of fine art…. There are a select few successful players in these arenas; they typically have lifetimes of expertise.

As for novice involvement in collectibles, it can be very risky business from an investing and financial point of view…. Unless you are an experienced, knowledgeable coin collector, with as much or more knowledge than your numismatic dealer possesses, investing in numismatics is a high-risk proposition.

The article goes on to describe some of the high-pressure, misleading, bait-and-switch tactics often used to fleece investors out of their savings, delivering to them “rare gold coins” that are worth only a fraction of their price tag.

One sure test to find out the value of gold is to find out how much you can SELL it for. Most prospective buyers find out the hard way that it’s much easier to buy gold than it is to sell it, unless you’re willing to take a large loss. (And this can be true whether you are buying and selling “rare gold coins,” Kruggerands, American Eagles, or heirloom jewelry that may be worth more melted down than as jewelry.)

If you do wish to purchase gold coins, stick to the popular/known coins,  and make sure the premium you pay over the “spot price” (which represents the current price for an ounce of gold) is as small as possible for the gold content you get in exchange. The value is in the gold, not in the design on the coin or a fancy display case, so the amount you pay over the spot price is the dealer fee.

There are many salespeople (some disguised as advisors) waiting to capitalize on fear and greed. Don’t let anyone pressure you into buying something that, as you’ll see, may not make strategic sense. While gold may have a place in your investments, we never recommend buying out of a fear-based response, as that is definitely not thinking from a prosperous mindset!

At present, the US dollar is still respected and accepted, in spite of inflation, which is not unique to the United States. Are there problems with our monetary system? Absolutely! Big problems. Yet the US dollar remains the world’s primary reserve currency. According to wikinvest, 25 different currencies are pegged to the US dollar, and 85% of all currency transactions across the world involve the US dollar. In terms of price stability and ease of use and trade, the dollar has actually been more stable price-wise than gold and is certainly more usable than gold coins in the present economy.

Prosperity Principle #2: SEE your finances from a macro-economic view.

Does purchasing gold help you see the big picture of your finances? We doubt it, unless it is your first move towards diversifying beyond mutual funds or savings accounts. Buying bullion, coins, or other precious metals tends to be yet one more instance of dividing up your wealth into smaller, disconnected pools, as we explored in our article, “Financial Flexibility: Saving Too Much in All the Wrong Places?

The immediate effect of purchasing gold is to take money out of circulation in your personal economy, which slows down the velocity of money, rather than increasing it!

Prosperity Principle #3: MEASURE opportunity costs.

Do precious metals help you REDUCE your opportunity costs? Nope. You spend money to purchase gold, whether coins, bullion, or any other form, and that money is no longer available to invest elsewhere. You give up the potential growth of those dollars or the growth of any income-producing asset they could purchase in exchange for a speculative bet.

LISTEN: Kim Butler is a guest on Guide to Financial Peace radio as No BS Money Guy Todd Strobel asks her – “Is Gold a Good Investment?”

Next Week: “Is Gold a Good Investment? Part 2” Stay tuned as we see how gold measures up as an investment against the rest of the 7 Principles of Prosperity! CLICK HERE for PART 2.

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