“Should I be buying gold?”
A common question I’ve received from clients lately has been whether to purchase gold. This issue of A Deeper Dive will briefly explore the history of gold in America and its possibility as an alternative to the U.S. dollar today.
Gold became part of the U.S. monetary system unofficially starting in the 1830s. From 1834-1933, the United States fixed the official price of gold at $20.67 per ounce.1 This became a formal relationship in 1900 with the passage of the Gold Standard Act. President Franklin Roosevelt suspended the gold standard in 1933 during the Great Depression after Americans fled the U.S. dollar for gold bars. After World War II, the Bretton Woods Agreement would establish the U.S. dollar as the global currency with a gold exchange rate at $35 an ounce- or “good as gold.”2
A monumental shift in the status of gold came in the early 1970s as President Richard Nixon ended the conversion of dollars into gold to fight high inflation due to the overvalued dollar. Terminating the official conversion rate of dollars to gold allowed the U.S. dollar to normalize in price based on the strength of the American economy.
Is gold an investment worth owning?
Gold will always be a commodity owned in various forms- bars, jewelry, even mutual funds. Its intrinsic value is in the eye of the beholder. Gold does not “produce” anything in the same manner as a stock (dividends) or bonds (interest), nor does it grow like plants or vegetables. Therefore, gold’s real value is tied to our desire to own it.
Should I buy gold as a hedge against the U.S. dollar?
Gold is historically considered a safe haven when our economy or government experiences turmoil. Unfortunately, gold bars are not easily exchanged for goods and services. Taking gold bars to the grocery store or gas station is impractical. Further, the U.S. dollar has a long history of stability and dependability as our primary tool for allowing us to buy and sell.
Will the U.S. dollar crash?
I strongly believe in the durability of the U.S. dollar. It is backed by the full faith and credit of the United States government. Our political climate often clouds emotion about our faith in the economy. I want to assure you that the dollar will continue to serve as our primary form of currency.
It is no secret that we are all experiencing much noise in the news. I encourage you to focus on your situation on the financial decisions we make together. Owning American companies within mutual funds is the key to your success.
Contact me with your questions on gold.
1. https://www.investopedia.com/ask/answers/09/gold-standard.asp
2. https://insights.som.yale.edu/insights/how-the-nixon-shock-remade-the-world-economy