By Mike Maharrey, Money Metals Exchange
You know gold is doing well when the mainstream sits up and takes notice.
The mainstream financial pundits specifically, and the media in general, are typically apathetic about gold at best. More often than not, they’re downright antagonistic.
The problem is that gold isn’t good for the regime.
You can go back to John Maynard Keynes calling gold a useless relic. Of course, he was motivated to say that because sound money is anathema to Keynesians. Without the ability to print an unlimited amount of fiat currency out of the air, governments would naturally be more limited and less prone to expand. The political class can't borrow and spend to provide stimulus (and buy votes) when hemmed in by sound money.
This negative mentality toward gold has seeped into the investment community. The mainstream tends to spurn the yellow metal. You’ll even hear absurd things like, “Gold is a useless metal.” Warren Buffett, a darling of the investment world, has always been negative about gold. He once quipped, “It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again, and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
But every once in a while, gold does so well that the mainstream can’t ignore it.
Apparently, we’ve hit that point.
Last week, CBS News ran an article listing several reasons to buy gold now.
The article starts by pointing out that gold is up more than 14 percent since the beginning of the year. The reporter said the price growth “has been interesting to watch,” and he went on to call it “impressive.” Then he actually recommended buying gold.
“There are several reasons that growth may continue ahead. So, it may be a good idea to buy into gold now - especially if you'd like to take part in the future price growth of the commodity."
And believe it or not, his reasons are pretty sound.
So, why does our intrepid CBS News reporter think it’s a good idea to own gold?
Inflation Protection – As the article points out, gold holds its value over time making it an effective inflation hedge. This has proved true during the current inflationary cycle. The price of gold has increased by about 29 percent since June 2021, nearly double the CPI increase during that same period.
The CBS article quotes a financial planner who astutely points out that you should think of gold as money.
“If all of your money is in U.S. dollars, your money is losing more than 3 percent per year in terms of purchasing power. By holding a portion of your liquid net worth in gold and other precious metals, you can better protect your purchasing power as inflation continues to eat away at the dollar."
Diversification – Gold has a low correlation with many assets. In other words, gold tends to go up when other assets are going down.
“You could increase your risk-adjusted returns by diversifying your portfolio with gold.”
For instance, in the early days of the Great Recession, equities and other risk assets tumbled in value. This isn't surprising. But many assets deemed portfolio diversified also crashed, including real estate, hedge funds, and most commodities. Meanwhile, gold was up 21 percent between December 2007 and February 2009. Investors holding gold got at least some relief in their portfolios.
While it is a solid diversifier, the truth is that most portfolios don’t include any gold at all.
Gold Is a Safe Haven – Gold tends to perform well during economic downturns and periods of geopolitical strife. It has also historically charted good returns when there is a lot of market volatility.
“Geopolitical conditions are concerning and with the presidential election taking place later this year, political market risks could soon become a reality," according to the CBS News report.
Liquidity and Universal Value – Gold is a very liquid asset. No matter what is going on in the markets or the economy, there are always plenty of people who want to buy gold. You'll never be left without a buyer.
According to the World Gold Council, the gold market is more liquid than several major financial markets, including the euro/yen and the Dow Jones Industrial Average.
The trading volume for gold averaged approximately $163 billion per day in 2023.
One of the things that makes gold so liquid is the fact that it is valued around the world. Whether you go to Europe, Asia, or South America, people recognize gold as a store of value.
As the CBS report points out, gold has been money for 5,000 years. It is accepted as such in every country in the world.
The Current Discount – While gold is up more than 14 percent this year, it has dipped from the record highs it charted a couple of months ago.
“It's down just over 3 percent from its most recent high. So, if you buy gold right now, before the price heads back up, you can do so at a discount.”
Here’s how the article summed things up. Keep in mind that this is coming from a report on CBS News, of all places.
“Gold's price has climbed substantially this year with the potential to rise even higher. And it's easy to understand why. … With universal value but a drop in the current price, it makes sense to act promptly, before the cost of the precious metal becomes prohibitive.”