Some of our clients have asked if we should invest in gold. (Posted August, 2013)

Don’t you wish you would have purchased gold early in 2009? Remember? The global credit crisis? The “world is going to hell in a handbasket” scenario? Many speculators rushed to buy gold, and the price shot up, and up some more. The airwaves were jammed with talking heads reporting record profits from investing in gold, and there were advertisements a plenty for gold coins, etc. We got calls from several clients asking if we should buy gold. Some insisted that we purchase some gold in their accounts, which, of course we did. Some wanted to buy lots of gold.

(Please forgive this brief digression.) We lost one good client, who decided to move his accounts completely to gold (elsewhere) after we advised against it. For the record, we hate to lose a client. We love every one of our clients. We consider them to be “golden.” OK, the gold metaphor might not have been the best in the present context, but that’s not the point. The point is that our clients are important to us. Every one of them. (End of digression.)

We consider gold to be a “speculation”, rather than an investment. If you are able to time your gold purchase, and subsequent sale well, then you can make money. However, we question the likelihood that most investors, including yours truly, would be able to make the timing decisions well enough to benefit beyond what an investor owning a broadly, and efficiently diversified portfolio of financial assets would gain.

So, what if you had purchased gold at the beginning of 2009? Would you still be holding it? If so, would you have done better than if you had purchased a “basket” of US stocks? No, you wouldn’t. As of July 31st, your $10,000 invested in gold would have grown to $14,840, while your investment in emerging market stocks would have grown to $16,956. Your US large stocks would have grown to $20,983, and your US smaller stocks would have grown to $22,510.

(Value of $10,000 invested January 1, 2009, as of July 31, 2013.)

  • US Smaller Stocks: $22,510
  • US Larger Stocks: $20,983
  • Emerging Market Stocks: $16,956
  • Gold: $14,840

To summarize, we do not believe that gold is likely to provide a return as great as that of a diversified portfolio of financial assets, except during certain relatively brief periods of time. And, we do not believe that most investors would be able to identify the brief periods during which gold outperforms.

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