Terry Savage: Why Gold?
All that glitters is gold these days. Gold has broken through to new all-time highs, having touched $2,000 an ounce. Why gold now? It’s very simple. The Fed is creating (“printing”) an enormous amount of dollars — with more on the way to finance the next $1-plus trillion stimulus bill. The “smart money” is losing faith in paper money.
The dollar is the world’s reserve currency, historically made powerful by our economic and military might. That means most global trade, especially oil, is priced in dollars. The “reserve currency” is accepted globally without question. In fact, in times of trouble, wealth has always flooded into the U.S. dollar as holders of other currencies seek safety.
Until now. The value of the dollar has fallen sharply in recent weeks — as the smart money has begun to question the ultimate value of the dollar when so many of them are being created to finance our deficit spending.
Gold has been the one globally accepted store of value for millennia. It cannot be created or destroyed. Alchemists since the middle ages tried to “create” gold, and failed. Remember Rumpelstiltskin? All the gold ever mined still exists — either above ground in bars, bullion coins and jewelry or at the bottom of the ocean in shipwrecks! And it’s getting more difficult and expensive to find and mine new gold ore.
The last time I wrote about buying gold in this column was in January 2019. At the time the price was $1,290/ounce. I explained that gold is volatile, doesn’t pay interest and often falls during economic woes — noting that in the 2008 financial crisis, gold traded as low as $900 an ounce. And then I went on to explain how to buy gold or gold mining stocks or funds as a potential protection for your portfolio.
We’ve lately seen how volatile gold can be. And it doesn’t matter much that you don’t get paid interest on gold bullion, since there are few safe places to earn any interest these days. When major financial gurus like Ray Dalio, Paul Tudor Jones and Sam Zell mentioned gold earlier in the year, even before the coronavirus pandemic, it really caught my attention. I had ended that 2019 column by saying: “Gold is out of fashion these days. That’s what makes it interesting.”
Obviously gold is back in fashion — so now it comes with a speculative warning. Yet here are the three ways I recommended investing in gold 18 months ago:
— Gold bullion coins bought through reputable dealers. Find one at Money.org, the website of the American Numismatic Association.
— Exchange-traded funds that track the price of bullion — the most popular being GLD, listed on the NYSE.
— ETFs that hold a portfolio of gold stocks. One of the newest, managed quarterly to adjust holdings of miners and precious metals royalty companies, is listed on the NYSE under the symbol GOAU.
— Gold mutual funds investing in shares of gold miners, which are offered by most major fund companies, including Vanguard and Fidelity. One of the oldest is U.S. Global Investors’ Gold and Precious Metals fund (USERX).
Full disclosure: I own each and every one of these suggested investments in my own accounts, and have for many years in most cases. I have never been shy about disclosing my feelings that gold belongs in a portfolio, not as a hedge against total global disaster but rather in case of global financial folly.
With the U.S. creating trillions of dollars of new paper money and credit — and global central banks joining in that race — I think we are truly at the edge of folly. And that’s The Savage Truth.
(Terry Savage is a registered investment adviser and the author of four best-selling books, including “The Savage Truth on Money.” Terry responds to questions on her blog at TerrySavage.com.)© 2020 TERRY SAVAGE