The Price of Gold Isn’t Important

Traditionally the gold price has an inverse relationship with the market. That is, at times of uncertainty, the gold price generally rallies. When the markets favours stocks, the gold price tends to decline.

If you have a look at the chart below, you’ll see what I mean.

Source: FXStreet

This is a 10 year chart of the Dow and the spot gold price. The Dow Jones is the white line and the spot gold price is the orange and blue candlestick one.

As you can see, for most of the past decade the Dow and gold have had this opposite relationship. However, since the Dow Jones started falling in mid-August — it’s down 8.4% to date — gold hasn’t seen much of a rally.

Because of this, some analysts reckon this is a reason to jump in and buy some gold before the rally begins.

These analysts are missing the point.

You don’t buy physical gold because it’s cheap. Trade ETFs if you’re after speculative gains like that. The reason you buy physical bullion is because it is part of a balanced portfolio. Physical gold should make up a part of your portfolio from scratch.

To a certain extent, price isn’t important when it comes to holding the yellow metal.

Look, when the gold price is rising isn’t the time to consider suddenly buying gold. Like any other asset, you don’t want to rush in just because everyone else is.

This is why gold is part of an overall investing strategy. Try to aim for around 10% of your portfolio in physical gold.

While you don’t want to pay more than you need to for any asset, the price of gold shouldn’t worry you too much.

Jim Rickards, the strategist for Strategic Intelligence repeated his position on gold two weeks ago. The way he sees it, the price you pay for physical gold isn’t important. Only that you have it.

Jim says gold is like ‘fire insurance on your house. Nobody wants their house to burn down, but if it does you are glad you have some insurance’.

You don’t worry about the price of your house insurance falling after you’ve bought your policy. The reason you have insurance is in case the worst scenario happens.

And that’s where gold fits in. It will still be worth something when the paper market crashes.

Buying bullion

While we are on the subject of gold, a subscriber to Strategic Intelligence sent me this question:

There is a lot of talk of buying gold (a non-digital asset if delivery is taken, ie no ETFs) but no practical advice. For instance in the US Hard Assets Alliance will organize quotes, take delivery and arrange store at a number of depots including some overseas including Australia.  Peter Schiff also will organize the purchase of gold. All are in USA, are there any similar organizations in Australia? Or what other advice would you have?

Subscriber, David

Normally when it comes to subscriber questions, I keep them to the newsletter. However this is a surprisingly common question. In fact, I reckon about once a month the editors of any one of our publications will be writing about how to buy gold.

Buying gold in Australia is easy.

There are many bullion dealers around. You can even buy bullion on eBay. However, a word of warning; unless you know the dealer on eBay, steer clear. You don’t actually know what you’re getting until you have the metal in your hands.

While it’s not a complete list, below are some of the larger bullion dealers in Australia:

I’ve personally bought from two of those companies on the list. The websites are easy to use. And you can buy ingots as small as 1/10th of an ounce from some of them.

Generally the bullion dealer insures the gold when it’s shipped to you. However you will need to sign for the gold to take delivery.

The next thing to think of is: where to store it.

If you have a safe at home, you can store your bullion there. But don’t go blabbing about owning any gold to anyone! Ever!

Another option is storing it in a non-bank safety deposit box.

Buying and owning bullion is easy to do. Just remember when investing in bullion, it’s money that’s likely to be tied up for at least five to 10 years. So never invest more than you can afford.


Shae Russell

Editor, Strategic Intelligence

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Markets and Money offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, Markets and Money delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors.

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