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Sound Advice: December 9, 2020

 Gold: Marching to a Different Drummer

As a complement to traditional asset classes, it is not unusual to consider precious metals such as gold, silver, platinum, and palladium. During times of economic stress, these kinds of commitments have tended to provide a measure of emotional comfort, which may or may not be accompanied by a price counterpoint to the course followed by stocks and bonds. Gold and silver have been the more common safe harbors, rising sharply on occasion and then moving sideways for extended periods. Though most frequently viewed as raw materials for jewelry, they have additional uses. Platinum and palladium have broader application, the most important of which is in automotive catalytic converters.


Given the array of investment vehicles that has become available, it is now relatively simple to add precious metals to one’s portfolio. The simplest way of doing so is by buying mutual funds or exchange-traded funds that invest directly in the metals themselves. Some funds are narrowly focused on one or two metals; others participate in a broader range.

There are other options to consider. One is gold mining companies, where the objective is to participate in the profitability of the companies harvesting the metal rather than in the profit derived from sale of the metals. Another is coins, the value of which in most cases derives directly from their gold content. In rare instances, there may be a value above the intrinsic value.

A few dicier alternatives are available through companies that foist upon unsuspecting investors the opportunities to buy bullion or perhaps gold coins that have mysteriously surfaced after years of being hidden away in secret vaults. On the surface, these may appear to offer considerable appeal. The reality, however, is that despite whatever story has been concocted to market the coins, their market values will be based on weight and gold content. No bonus for the mystery.

Also, it’s important to remember that gold bullion and gold coins are tangible assets that bring with them the cachet of something you can touch. The hitch is the matter of storage and insurance to cover the value of the gold you are holding.

Holding tangible gold has a further appeal: In most cases, there is a ready market for sale. If and when you decide to sell, there will be buyers available, but the price will be whatever gold is selling for at the time, which may be significantly higher or lower than the original purchase price. This is equally true when holding funds that invest in gold. In the latter case, however, the investor does not have the expense or the inconvenience of dealing with the issues of storage and insurance.

With the exception of a few gold coins that are rare and unusually valuable, the market value of gold is directly related to its purity and weight. Rule of thumb: An ounce of gold is an ounce of gold, regardless of its size or shape.

Precious metals are best viewed as shock absorbers for one’s portfolio. It is true that on occasion, especially when other asset classes are weak, precious metals have performed well. Over longer periods of time, however, their performance has been less than stellar and expectations to the contrary need to be tempered. Their place in portfolios is to provide stability and a moderate measure of longer-term growth.

N. Russell Wayne, CFP 

Questions?  Please contact me at nrwayne@soundasset.com

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