Marc Cuniberti The price of gold continues to give head fakes bumping up into the $2000 an ounce range then backing off again and again.
Gold bugs get their hopes up and then are discouraged when it falls again. The question becomes when will gold claim victory and plow upwards and stay above the $2000 level.
Often thought of as an inflation hedge, I often get asked whether investors should add gold to their portfolios to protect against inflation.
I have always said we must be clear about why we own an asset and having such clarification makes us better understand what to expect from an investment.
For example, I own my car to have transportation, and one might own a gun or a dog for protection. We don’t look to those things to make a profit.
I own my house to live in it, not to solidify my retirement. Maybe a rental house might fill that spot, but not my primary residence. In the mid-2000s some thought a house was a retirement solution, and when the housing market crashed, they found out homes were primarily a place to live instead of counting on them to boost retirement savings.
When considering gold, if an investor buys gold to make a profit, gold stocks might be a better place to be than owning physical gold coins.
I regard holding gold coins as a hedge against financial Armageddon and not for making a profit. That is because physical gold has a significant tax requirement put on by the IRS. The IRS taxes capital gains on gold the same way it does any other investment assets but if you have bought physical gold, you will likely owe a higher tax rate of 28% as a collectible.
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Physical gold also has a healthy spread between the buy and sell price, sometimes as much as 10% or more. All things considered however, physical gold does have its place for some investors.
If one believes the price of gold will increase, gold stocks might be a better way to go as the tax rate can be like any other stock. Additionally, gold stocks may move exponentially higher than the spot price of gold. If gold rises $100 bucks, gold stocks may increase by a higher percentage than the coins themselves. Stocks are also easier to buy through any brokerage account and one doesn’t need expertise as far as what to buy.
Keep in mind, however, what gold stocks to buy does require some research. There are gold funds that attempt to mirror the price of gold one to one, and any financial professional should be able to walk you through what to consider based on your risk profile and expectations.
There are rumors that the gold price is manipulated by governments as the price could be considered as a thermometer of the health of currencies. A higher gold price may mean the monetary tools of government are being abused through higher deficits and excessive money creation by central bankers.
Whether governments actually fear a spike in gold prices is a subject of controversy but the rumor is out there.
Remember, gold is recognizable worldwide and even central banks all over the world maintain a healthy store of it. Gold is rare, hard to find, cannot be printed by central bankers, and may be one of the only constants where money is concerned. It has also been around since the beginning of civilization and has always been accepted as a store of value. Centuries ago gold could buy a suit of armor and a good meal. Today an ounce of gold can still by a nice suit and a meal, so one could say the buying power of gold has never yielded to inflationary pressures.
That said, the decision to buy gold is one for consideration as a diversified holding in one’s portfolio. For those wishing to hold physical gold, there are many reputable dealers on the web and you can shop one against the other for the best price. Be aware that prices can change rapidly and the quote you get may only be good the day of the quote. Ask the dealer for their specific terms. For gold stocks and funds, your financial professional should be able to answer any questions you may have. I also welcome any questions by email.
“Watching the markets so you don’t have to”
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This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, and California Insurance License #0L34249. His insurance agency is BAP INC. that can be contacted at (530)559-1214. Marc was voted best financial advisor in the county 2021. Email: [email protected]
