Dollar Scholar Asks: Should I Buy Gold?
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This is an excerpt from Dollar Scholar, the Money newsletter where news editor Julia Glum teaches you the modern money lessons you NEED to know. Don't miss the next issue! Sign up at money.com/subscribe and join our community of 160,000+ Scholars.
You know that classic scene from Parks and Recreation where Chris Pratt’s character, Andy Dwyer, tells Ron Swanson all of his secrets? He starts off easy, like “I once forgot to brush my teeth for five weeks” and “I didn't actually sell my last car, I just forgot where I parked it,” before he reaches the meme-worthy confession “I don't know who Al Gore is, and at this point I'm too afraid to ask.”
Well, that’s me with gold.
I know who Al Gore is (obviously — I lived in Florida in 2000), but I truly feel like I missed some sort of class where everyone else learned the basics of gold. I have a lot of questions that I’m too embarrassed to ask. Why would someone buy gold? How does someone buy gold? Isn't it heavy? Are they literally storing gold bars in stacks like pirates in cartoons?
If Andy can land April, I can figure this out.
Should I buy gold?
I hopped on Zoom with Joe Cavatoni, U.S. market strategist for the World Gold Council, to get the scoop. He began by explaining that gold is a special asset in that it’s a commodity that also serves as a form of money.
Unlike money, though, gold is scarce. The supply is finite — if you put every single ounce of gold that’s ever been mined into one big cube, it’d only be 73 feet tall — and that contributes to its value. It is reliable and not controlled by any one entity.
Gold also has a reputation as “safe haven” asset. While assets like stocks are prone to volatility, gold tends to stay steady throughout periods of inflation and economic uncertainty. (Cavatoni called it a “shock-absorbing buffer … when things go haywire.”)
That makes it a compelling place for me to store my savings because I can be fairly certain it’ll keep its value even amid, say, the second- and third-largest bank failures in U.S. history.
“It’s a strategic haven in uncertain times as much as it is a savings and wealth creation tool,” he adds. “That dual nature, which separates it from all other commodities, makes it [a] unique form of monetary financial reward that people tend to want to gravitate to.”
Paul Misleh, a certified public accountant and head of portfolio management at Fortis Financial, tells me one of the biggest pros of gold is that it's able to outperform in times of instability. For instance, during peak pandemic in August 2020, gold futures hit a record $2,069.40 per ounce.
It also provides good diversification.
“Gold works best for those looking to own an asset that provides a portfolio buffer during periods of market distress and/or inflationary periods,” Misleh says. (On the other hand, someone like a young tech worker might not be the best candidate because they could take on additional risk through equities, he adds.)
It's important to remember that gold doesn’t generate income, and its price can be volatile in the short term. And as with anything, I don’t want to over-expose myself. Experts recommend that investors keep no more than 10% of their portfolio in precious metals (this includes silver and palladium, too).
But if I do choose to buy gold, I don’t have to get a Gringotts-style vault.
Cavatoni says I’ll need to make a decision between getting a financial instrument or the physical form. He recommends asking myself three questions: 1) Where do I want to keep it? 2) How do I want to own it? and 3) How long do I think I want to own it?
Certainly, gold bars — and coins, and jewelry, for that matter — are an option. These forms are often called bullion; Cavatoni notes they are particularly popular in China and India. Stateside, I may want to purchase Congressionally authorized U.S. Mint bullion coins through a dealer. (The going price for a 1-ounce 2023 American Gold Eagle is over $2,000, but I can get a quarter-ounce for about $700.) These coins can even go in my IRA.
Having physical gold can be tough because I have to figure out where to store it safely. It might be easier, therefore, for me to buy a financial instrument that gives me access to gold.
Misleh says that when most people talk about buying gold, they’re actually talking about investing in a gold exchange-traded fund (or ETF) that tracks the price of the precious metal while owning physical gold in a trust. It’s not super-expensive, either: One share of GLD is about $180, and one of IAU is about $37.
Dipping my toes into the water this way can help me keep track of my gold as well as my long-term financial goals. As Cavatoni puts it: “If I put a bunch of coins in a safe in my attic, it's a little hard to see how that fits into my portfolio.”
The bottom line
Buying gold can be a way to store value, hedge against inflation, protect myself from economic volatility and diversify my investments. It’s not hard or expensive to get started, but I do need to nail down what, exactly, I’m hoping to accomplish. Those priorities will dictate my next steps, including whether I purchase gold in its physical form or invest through a vehicle like an ETF.
