Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Warren Buffett Hates Gold… But Here’s Five Reasons You Need To Own It

Commodities / Gold and Silver 2017 Apr 29, 2017 - 03:03 AM GMT

By: HAA

Commodities

Stephen McBride : In a 1998 speech at Harvard, legendary investor Warren Buffett shared his thoughts on gold:

“[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again, and pay people to stand around guarding it. It has no utility.

Buffett is correct—gold doesn’t produce earnings or pay dividends. There are, however, some good reasons gold should be an essential part of every investor’s portfolio.


#1: Real Interest Rates Are Still Negative

Even with the Fed raising nominal interest rates, real rates—that is, the nominal interest rate minus inflation—are still in negative territory. And real rates are what really matters to your portfolio.

In the first quarter of 2017, inflation averaged 2.57%.

Today, a one-year bank CD pays about 1.4%. Therefore, to keep all of your money in a bank account means to watch your purchasing power erode.

Of course, there are other options. You can put your money in US Treasuries or dividend-paying stocks. However, with the 10-year Treasury yield hovering around 2.25% and the average dividend yield for a company on the S&P 500 at 2.33%, you would still be in negative territory.

Gold is known as the yellow metal with no yield, but simple math tells us no yield is better than a negative one. In fact, real interest rates are a major determinate of which direction the price of gold moves in.

Source: ETF Securities

So, gold will protect your capital from the eroding forces of negative rates… and help it grow at the same time.

#2: The Dollar’s Value Has Collapsed

The US dollar may be rising against other currencies like the euro and yen. Nonetheless, in the last 50 years, its purchasing power has fallen by 86%.

Source: St. Louis Fed

As this chart shows, keeping your savings in cash is a poor wealth-building strategy. On the other hand, gold has more than kept up with inflation. Since 1972—the first year private ownership of gold became legal again—the price of gold has increased by 2,400%.

#3: Gold Is Money

Why has gold retained its value while fiat currencies have fallen? It’s because gold is money.

2,000 years ago, Greek philosopher Aristotle theorized that any sound form of money must be: durable, portable, divisible, and have intrinsic value.

Gold has all these characteristics— that’s why it has proven to be a long-term store of value. Fiat currencies like the dollar cannot be considered money as they don’t have intrinsic value.

In other words, gold is payment in and of itself, but the dollar is only a promise to pay.

#4: Negative Correlation to Stocks and Bonds

The world’s largest asset manager, BlackRock, pointed out recently that in the last decade, the correlation between stocks and bonds has been at almost double its long-term average.

Therefore, a portfolio comprised of 60% stocks/40% bonds no longer offers investors adequate diversification. Sure, it’s great when markets are rising—but when the tide turns, that’s going to be a problem.

To keep all your eggs “out of one basket”—buy gold. Recently, the correlation between gold and the S&P 500 stood at its second-lowest level in over 30 years. That’s also the case with gold and bonds.

#5: No Counterparty Risk

Gold is one of the few assets that has no counterparty risk. What does that mean?

No counterparty risk means that once you have physical gold in your possession, you don’t depend on someone else to fulfill a contract or keep a promise for it to retain its value.

Stocks, bonds, ETFs—essentially all paper assets require another party to make good on their end of the deal. Physical gold’s value does not hinge on someone else’s obligation to pay.

Aside from being a long-term store of value and diversification tool, there’s another reason you should buy gold.

Bonus Round: A Profitable Portfolio

Since the beginning of 2017, gold is up over 10%, making it one of the best-performing assets of the year. And this is no anomaly.

Since late 2015, gold has outperformed the S&P 500 by 30%. In fact, gold has been the best-performing asset class since the turn of the millennium.

Not only will gold preserve your wealth and insulate your portfolio from market sell-offs, it can earn you a profit at the same time.

Given the negative real rates, a falling dollar, and heightened correlation between stock and bonds, gold should be an essential part of every investor’s portfolio today.

Get A Free Ebook On Precious Metals Investing

Before you buy physical gold, make sure to do your homework first. You’ll find everything you need to know in the definitive ebook, Investing in Precious Metals 101. Find out which type of gold to buy and which type to stay away from, how to spot scammers, where to securely store your gold, why pools aren’t safe places, and much more. Click here to get your free copy now.

© 2017 Copyright Hard Assets Alliance - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable,but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules