If you have ever wondered if you should Own
Gold and have read the news about the debt ceiling and whether or not Congress and Obama are going to come to an agreement in time to avoid a default, it has made you think about gold even more. Speculation from so called experts is all over the board as to what will happen if the government doesn’t raise the debt ceiling by August 2nd and perhaps this is what is fueling the gold price to new levels.
Gold is currently at $1,616 per ounce, should it close at this level or higher it will set a new record close. Certainly owning gold, should the government default on its debt, will protect your assets as gold will rise on “safe haven buying.” If the government does default the dollar will likely lose value which will also push the price of gold higher. But lately the only reasons we hear for why people and institutions are buying gold are safe haven and fear of inflation.
Sure these two reasons are very prominent in the minds of investors worldwide. Gold has long been held as a safe haven asset. One that will protect your assets in the face of a wide variety of calamities from banking crisis to government defaults. Gold has also long been held as a hedge against inflation as it tends to maintain purchasing power over time. You have probably heard a quote that goes something like this, “an ounce of gold 100 years ago could buy a nice men’s suit and that same ounce of gold could buy the same nice suit today.” There is no doubt most people are concerned about inflation. Just look at how much money the US has printed since 2008, it’s staggering.
I agree that protecting your assets against various crisis and inflation are probably the most important reasons to own gold but there is another side to the coin. There is opportunity in gold. We are currently experiencing what people call a generational bull market for gold, which means that it only comes around once in a generation. Bull markets present institutions, hedge funds and individuals alike the opportunity to ride a wave of increasing value. Sure the dollar has lost over 33% of its value since 2001, but gold has outpaced that loss by many times over, rising over 495% in that same time frame.
If you look at the gold bull market from 1970 to 1980 you will see that gold rose over 2,400%. So far in this bull market gold has risen just over 550%. Not that past performance guarantees anything but we still have not seen a very important characteristic of bull markets, which would be the third phase also called the panic phase. This is where everyone sees what is happening and wants in. This is irrational exuberance as Greenspan put it. This is where prices rise far above fundamental value at a rapid pace. Buying in before this happens offers tremendous opportunity.
While buying gold is a great hedge it also presents tremendous opportunity. If you don’t own any gold I encourage you to overcome your fears and start participating, whether you are concerned or if you just want to ride the wave and own gold.