Pot of Gold

I get asked all the time what a good investment is. While there are investments that are definitely bad no matter what, there are never investments that are definitely good no matter what. There is one, however, that I would put into a class all its own, an investment that’s almost never bad… Gold.

Putting Gold Into Context

There are a lot of people out there who don’t understand the application of gold except as jewellery, like these poor fools. Let’s put aside the fact that the current spot price of gold is now almost at $1700. There’s a history behind it to put this all into context, an extensinve one I’m going to try to condense. Long before history was recorded, gold was sought after for its shiny, malleable qualities. Because of this, gold gave rise to the concept of money itself: portable, private, and permanent. Gold (and silver) in standardized coins came to replace barter arrangements, and made trade in the ancient days way easier.

Why I Like It So Much

Putting aside my dreams of dressing like Mr. T with thick gold chains around my neck, the most attractive quality of gold is its ability to hedge against inflation. Money as we know it today is actually a debt certificate for gold. So in other words, the dollars in your bank account are actually symbolic of gold. While the dollars in your bank account can lose or gain in value, gold on the other hand will stay firm over the long term. How firm? Back in the time of Nebuchadnezzar, a gold coin could buy you 350 loaves of bread. More than 3000 years later, a gold coin will buy you… 350 loaves of bread. Try doing that with a Canadian dollar.

What Could This Mean For Your Portfolio?

Let’s look at what having inflation-proof assets can do for you.

The strategy is called “capital preservation”. Imagine being 65 and having the markets drop the way they did in 2008. If you had an idiot advisor who told you to wait out the volatility, you’re pretty screwed. As you get closer to a goal, like retirement, you would ideally like to preserve any gains you make in equity or from your job and not risk losses for further gains.

This is a great time to look into buying gold. It’s for this reason that there’s been a recent spike in the purchase of gold. With the volatility in the markets, it’s seen as an investment bomb shelter no matter what part of the world is going to hell, since gold is universally accepted as a standard in currency. I remember talking to a friend whose plan was to put all their money into gold and when it was time to retire, simply go to the country with the weakest currency.

So depending on your situation, gold might not be the best choice, but it will never be the worst.