“You could take all the gold that’s ever been mined, and it would make a cube 67 feet in each direction. For what that’s worth at current prices, you could buy all the farmland in the United States; you could buy 10 Exxon Mobiles, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?” – Warren BuffetThroughout human history, gold has been prized for its beauty, relative rarity and perceived intrinsic value. It has been a store of wealth for kings, nations and individuals alike. And, most recently, it has been marketed as a way to hedge market volatility or protect wealth when the value of currency is declining.Should you join the current gold rush? There are two main trains of thoughts I’ve heard from Falcon residents lately. First is the “end of civilization as we know it” situation, best put by one anonymous local fellow: “The only ‘investments’ I’m interested in are gold coins, shovels to bury ’em in the yard and shotguns to keep the zombies away.”If, like this gentleman, you’re trying to prepare against an “end of civilization as we know it” situation, consider this scenario: Imagine some natural or man-made disaster has come to pass and you own the last tank of gas in Falcon. Two of your neighbors want to buy a gallon from you. One has a couple of what appears to be gold coins. The other has a cage full of chickens. There’s not much use to you in those gold coins (you won’t be able to determine if they’re real anyway), but you and your kids sure do like chicken dinners. Does this mean you should liquidate your 401k and build a bunch of chicken coops? No, although I’m sure Big R would love to help you with that. Should you be prepared to be self-sufficient for several days in the event of a disaster? Absolutely. But that’s not what your portfolio is for.The second train of thought I’ve heard is the one pitched on late-night TV and talk radio: That gold has “never gone to zero” and it’s the “perfect hedge” against inflation, dollar devaluation and the stock market.Sure, gold has never been free, but neither has a well-diversified and managed portfolio of stocks and bonds. The hedge argument also has some serious scratches in its shiny gold finish.Gold over the last 200 years has only barely kept up with inflation; and, since the U.S. went off the gold standard, it hasn’t managed even that. There has been much controversy about whether the recent run-up in federal debt will result in the U.S. dollar being worth less in the near future. This may be true, but consider what happens if the government needs to start paying down debt in a hurry to satisfy foreign creditors. At $1,300 per ounce, the gold in Fort Knox and the Federal Reserve starts looking like a good way to pay off a couple trillion bucks. This will push down gold prices dramatically as the additional supply hits the market. And the last argument, as a way out of stock market volatility, is laughable at best. In the last few decades gold has been a far more volatile investment than equities.In addition to these points, gold’s use as an investment is tarnished by the fact it has no dividend yield or interest rate to reinvest; almost every industrial use of gold can be substituted by cheaper silver; and with physical gold purchases you face costs of storage, insurance and liquidity.So, if you’re worried about a giant solar storm or asteroid (or zombies), spend a few hundred bucks on dry goods, water and extra batteries. If you’re worried about inflation or the value of the dollar affecting your nest egg, there are far more effective ways to diversify and protect your portfolio.Jason Gray owns GoalView Advisors, a registered investment advisory firm in Falcon. He is a Falcon resident and serves as chairman of the board for the Eastern Plains Chamber of Commerce. He can be reached at 719-439-2054 or jason.gray@goalviewadvisors.com.
