Every week, Allworth Financial’s Amy Wagner and Steve Hruby, CFP, answer your questions. If you, a friend, or someone in your family has a money issue or problem, feel free to send those questions to yourmoney@enquirer.com.
P.A. in Hillsboro: Thoughts on owning gold right now?
Answer: If you’ve been following the price of gold this year, the thought of owning it can be quite alluring. After all, so far year-to-date, gold prices are up almost 15 percent (which is close to the S&P 500’s 17 percent gains). In fact, gold is so popular right now that Costco can’t keep their one-ounce bars in stock!
And the economic environment seems primed to give gold even more of a boost: Gold has traditionally been seen as a hedge against inflation, and as we all know, inflation currently remains higher than the Federal Reserve would prefer. Plus, the metal is often touted as a doomsday must-have, and geopolitical tensions abroad don’t look like they’re abiding any time soon.
But don’t let its shine blind you to what the data says. A Morningstar analysis finds that gold has actually underperformed stocks during every 10-year period for the last 100 years. Plus, gold doesn’t generate any income, such as dividends. And its track record as a so-called inflation hedge has been spotty at best. According to CNBC, while gold investors saw massive gains during the super high inflation years of 1973-1979, investors lost an average of 10 percent from 1980-1984 when inflation was around 6.5 percent. Similarly, gold saw a negative return of 7.6 percent from 1988-1991 when inflation was about 4.6 percent. A mixed bag for sure.
But you’re probably thinking, “Yeah, but it’s tangible. I can hold it in my hand.” True. But assuming the apocalypse doesn’t hit any time soon, if you want to buy or sell physical gold at a dealer, there will likely be transaction fees that eat into your returns, not to mention potential markups. And it’s only worth what someone is willing to pay for it on that particular day. Plus, there’s the question of where are you going to store it? How are you going to keep it safe? And depending on how much of it you own, will you pay to insure it?
Even if you ‘hold’ gold inside an investment, such as in a mutual fund or exchange-traded fund (ETF), there are likely going to be extra fees associated as well. For instance, the SPDR Gold Shares ETF charges a 0.40 percent annual carrying cost according to Barron’s. And as for those ‘gold IRA’ commercials you see on TV? Be careful. It’s a financial product that also comes with fees (which aren’t always fully disclosed), commissions, and can be illiquid. Some gold IRA companies have even been accused of exorbitant markups, pushy sales practices, and in some cases, all-out fraud.