Is Gold a Good Investment NOW?

Posted on March 20, 2020 |

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How to value gold as an investment and when to buy

The price of gold is surging but is it too late to buy? How do you know if gold is a good investment now?

In this video, I’ll show you how to value gold as an investment. We'll look at the major supply and demand factors that drive the price of gold as an investment. Then I’ll reveal three ways to buy gold including one you should never use.

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Gold Prices and How to Value the Investment

Nation, gold is up HUGE over the last year but how do you know if it’s a good investment right now?

The price of the pretty little metal zoomed 13% last year for it’s best return in five years. Gold is already up 7% this year on the Coronavirus scare and Ray Dalio, manager of the world’s largest hedge fund thinks it could zoom 22% higher to $2,000 an ounce by the end of the year.

In this video, I want to show you the factors that go into the price of gold so you can make your decision whenever you see the video. We’ll cover both the supply and demand picture and I’ll share three ways you can buy gold including one I’m using right now!

The video is in partnership with Vaulted, a platform that lets you invest directly in gold bars, with insured storage in the Royal Canadian Mint or physical delivery to your home. The gold is certified 99.99% pure and it took me less than a minute to set up an account and buy my first gold bar.

I’ll show you how to buy gold through the platform later in the video but I’ll also leave a link in the video description for more information.

Check out the Vaulted app and buy gold bars for protection and return!

I’ve added a clickable index in the video description as well so if you want to jump to those supply and demand factors for gold, but first I want to cover why you might consider having gold in your portfolio. Why you should buy gold as part of an investing strategy outside the potential for the returns we’ve seen this year.

Why Should You Invest in Gold?

Gold is a physical asset so it’s a store of value against inflation. That was hugely important in the 80s. Now while inflation hasn’t been a problem lately, with Central Banks all but dropping cash from a helicopter lately, that inflation-protection could come back as critical in the future.

Gold is also the ultimate safety asset when markets crash and investors panic. Just look at what it’s done this year and in other periods of market weakness. The last two major bear markets saw the price of gold higher by 19% on average.

Gold is the asset investors run to when they lose confidence in everything else. More than safety sectors in stocks, more than bonds or cash, gold is where they go.

That makes it a great choice for the what-if part of your portfolio. What if inflation returns in a big way? What if central bank money-printing devalues currencies? I don’t know, what if a viral outbreak infects hundreds of thousands and grinds the economy to a halt?

How is the Price of Gold Determined?

So let’s look at the supply and demand factors that affect gold, how to determine if the price will go up or down and when you should buy as an investment. Then I’ll show you those three ways to buy gold for your portfolio.

How Does Gold Supply Affect the Price?

The supply side is easy. The World Gold Council estimates that 190,000 tons of gold have been mined with about two-thirds of that since 1950. Since gold is pretty much indestructible, virtually all the gold ever mined is still in circulation.

A bar chart of supply shows just how consistent this is, every year mine production adds about another 3,500 tons of gold and a thousand tons is recycled. So you’re looking at consistent supply growth of less than 2% each year.

Four Sources of Gold Demand and Prices

With this consistency in supply, understanding gold prices is all about demand. It’s in the four primary uses; jewelry, technology, investment and central bank buying that drive the price of gold higher or lower.

Short-term, from year-to-year, the price of gold follows the changes in demand from these four uses. Longer-term, the price will generally rise along with inflation and that constant addition of new demand for jewelry, tech hardware and government holdings.

To see why gold has been rising over the last year, we only have to look at the different users. Central banks have been buyers for 10 consecutive years and 2018 saw the largest purchases since Nixon closed the gold window in ’71.

This is really where I see a lot of support on the price over the next decade. Especially China and Russia, but most of the central banks around the world are trying to diversify their reserves away from the dollar. There’s really no other reserve currency that’s as stable so they’re increasingly turning to more gold.

Gold held by ETFs grew by over 400 tons last year to a record of almost 2,900 tons and investor demand also picked up on global uncertainty. Lately that investor demand has skyrocketed from the Coronavirus and stocks falling into correction territory.

Demand from technology is fairly consistent and follows the general business cycle. More tech and electronic products created means more demand for gold as a conductor. In fact, jewelry is really the only demand driver where we saw a significant decrease last year, with demand lower by about 133 tons due to the higher price.

How to Determine if Gold is a Good Investment

So knowing if gold is a good investment right now means looking at these factors, understanding the trends and asking yourself if they’re likely to increase or decrease in the future.

Central bank buying is likely to continue to increase. Relations between the U.S. and China or Russia are pretty much at a multi-decade low and governments are rushing to diversify their reserves away from the dollar.

Investment in gold is booming and I think we’re building that momentum that brings even the hesitant investors back into it. Nation, who knows how bad the Coronavirus will get but it’s not going to be the last of these scares and the 10-year bull market isn’t going to last forever. When all this falls apart, investors are going to jump back into gold just like in every recession.

Jewelry demand is generally rising with a growing middle-class around the world. This demand factor is probably going to be the weakest simply because as that price of gold increases, people will buy less jewelry.

Gold used in electronics is what I think could surprise the market. 5G and the internet of things could set off an explosion in electronics production and that’s going to mean increased demand.

So we know how to value gold, how to watch those factors in the price to see if it’s a good investment. Now I want to show you three ways investors are using to buy gold; two that you should consider and one that is the worst decision you can make.

Three Ways to Invest in Gold

One of the most familiar ways to invest is through shares of gold miners and the SPDR Gold Shares ETF, ticker GLD.

I like investing in gold miners because you get that dividend yield even if the payouts aren’t great for most companies. You get an ownership share of a company creating earnings and distributing that for a cash return. If we look at the VanEck Gold Miners fund, ticker GDX, we see a dividend yield of 0.66% for the industry…so nothing that’s going to make you rich.

The problem is that these miners will often underperform the return on the price of gold. The companies have to deal with geopolitical issues, mining and everything else that comes with running a company and that can mean losses. For example, if you look at a chart of Nemont Mining, the world’s largest gold miner, in green here, against the SPDR Gold Shares in red, we see that Newmont has underperformed the return on the price of gold for most of the last two years.

Now, if you can time your investment, these can still be great plays. I recommended Eldorado Gold as one of my favorite penny stocks in April of last year just before the shares jumped 118% by September.

So investing in gold miners can pay off but you never get that physical ownership of gold, the kind that protects you from the worst of the what-if scenarios. For that, another way to invest is through a platform like Vaulted.

I met their Chief Operations Officer last year at a conference and was immediately interested. The Vaulted app is managed by the McAlvany Financial Group and the International Collectors Associates with over 48 years of advising clients in gold and precious metals.

When you buy gold on the app, you’re buying actual gold bars of 99.99% purity held in an account at the Royal Canadian Mint. This is the actual vault used by the Canadian government and audited every year. It took less than a minute to set up my account and link a bank account. Once I transferred some money, I could buy gold or even gift gold to someone else.

Buy physical gold bars on the Vaulted app – the app I use to invest

That gold is held in insured vaults at the Mint until you sell or take physical delivery. Delivered bars are insured and sent by Fedex. Now there is a 1.8% charge for buying and selling your gold on Vaulted but they’re totally transparent about it and still less than I’ve seen on other physical gold buying sites.

Our third way to buy gold, and really the worst way imaginable, is buying gold jewelry. I used to see this a lot in 2012 and it seems to be coming back. The biggest problem here beside just all the scams out there, is that jewelry gold can be as little as 37% gold with traces of copper and even zinc in it.

Beyond that problem of purity and the outright fake gold, you’ve always got to worry about losing your jewelry or it getting stolen. Investing in gold and wearing nice jewelry should be totally separate things…keep it that way.