Shakespeare is the best-known user of the idea. The original Shakespeare editions of The Merchant of Venice, 1596, have the line as all that glisters is not gold. ‘Glister’ is now usually replaced by the more commonly used ‘glitter’, which has the same meaning:
If you want to advertise an investment-related website on a major Internet-based advertising network (that of Google, for example), it will cost substantially less to advertise a mutual fund or stock research website than it will for a site on investing in gold.
Does this tempt me to transform from a mutual fund site to a gold site? Not quite, but it does make one wonder how much sense gold makes as an investment and how exactly one should invest in it.
Does it make sense to look at gold as an investment? If you look at historical gold prices over the last 70-80 years, then it does make sense to think of gold as a good asset type in which to put some proportion of your savings. Apart from an anomalous period during the late nineties, Gold has yielded around 8-10 per cent a year over most of period since around 1920.
What is bad is doing what most seem to be doing in the name of investing for gold. We have this idea that gold is a good investment for bad times and then instead of buying gold, we buy jewelery. But there’s a problem. Jewelery is not gold, at least it’s not the kind of gold that can be considered an investment.
And interestingly, the common belief that gold does better during times of economic and political distress has also held true. During these years, high jumps in gold prices have occurred during the 1940s and the 1970s, both periods of greater turmoil than normal. For example, from 1965 to 1980, gold sustained an increase of 21 per cent a year, more than keeping pace with the high inflation of the times.
By this measure, what is happening now is quite odd. The boiling over of gold prices that has happened over the last five years doesn’t fit into any earlier pattern. However, when one takes a longer view, it is clear that holding five or ten per cent of one’s assets as gold can’t be too bad an idea.
If you want to buy gold as an investment, then you must buy it a form in which it can reliably yield back its real value without any problems anywhere, after any period. The only form of gold that satisfies this requirement is investment grade gold bars or coins. This kind of gold is actually sold by many banks and comes with all the proof that you need to know that you are buying gold that is actually gold.
Building the foundational core of a new gold portfolio is very easy for any investor today. After you decide what portion of your overall capital you would like to deploy into gold-related investments, you can easily start buying gold to form the base of your new gold portfolio.
Once you have acquired a modest position in physical gold, you will join the countless prudent investors throughout the millennial of history who always maintained a core gold position as a low risk investment/insurance just in case unforeseen events damage or impair the rest of your portfolio. The future belongs to the prepared!