I just returned from a national symposium on financial planning issues in these challenging economic times. In the coming weeks I will share my thoughts on a number of subjects raised at the symposium and how to deal with them so they don’t ruin the plans we have in place. I will also share the video interviews I did recently for Checks and Balances TV (checksandbalances.tv), a national financial news network that has grown dramatically due, in my opinion, to its unbiased and straightforward presentation of financial issues.
This week’s update focuses on gold, that shiny metal which has captivated man’s attention for centuries. Gold is a metal found in various parts of the world, with the African and South American continents representing major mining sites. Once mined, it is smelted at very high temperatures to remove impurities and the residue of the process is 24 carat gold or pure gold. Gold is used in jewelry (mostly 14 carat or 60% pure gold), in manufacturing and as a financial instrument. At one time gold backed the US currency such that a US dollar could be redeemed for a dollar’s worth of gold owned by the government. As our economy grew, we created more currency and credit than we had in gold and our currency went off the gold standard. There are those who advocate returning to the gold standard but that would require a huge constriction in the size of government in order to balance our economy with the gold supply, something that could have disastrous consequences if attempted over anything less than a very long period of time.
In inflationary times, gold often rises in value as it is seen as a hedge against the decline in the purchasing power of the dollar. We saw such a rise take place earlier this year and, frankly, over the last few years. As countries in Europe and our own deal with growing budget deficits and the need to curtail further expansion of sovereign debt, there is speculation that the printing of more currency will occur and that, in turn, will devalue the currency in circulation, i.e., create inflation. That is why so much attention has been focused on owning gold.
There are basically two ways to own gold; buy the physical metal or buy securities tied to gold. In India where the banking system is suspect, many wealthy people have their funds invested in gold jewelry worn by the men and women. In this country, a variety of firms actively market gold bars and coins through television and internet advertising. However, owning physical gold, whether in jewelry or in bars and coins, raises security concerns and the practical concern of how to liquidate one’s holdings in a falling market. For these reasons, owning gold-backed securities has become an increasingly popular option for those who want to hold gold.
Attached is an article from this month’s Investment Advisor which speaks to gold ownership and the various gold securities which can be purchased. I have a number of clients for whom I have bought shares in SPDR Gold Shares (GLD), an exchange traded fund invested in gold mining stocks. The advantages of owning a gold-backed security rather than physical gold include the elimination of the safety and security issues as well as greater flexibility in a declining market.
Is gold something you should consider owning? Obviously that depends on your individual circumstances and your perspective on the future of our economy. If you would like my help in exploring those issues or in making an investment in gold securities, please call me.