Gold has been in the headlines lately. Maybe you’ve noticed. I’m specifically talking about the shiny metal being sold by warehouse giant Costco. The bars are selling out within hours, if you can get them at all.
With so much enthusiasm around gold, it begs the question: Should gold be a part of your retirement plan?
Gold prices over the decades
It’s important to recognize how gold behaves. If you pull up a price chart that spans several decades, you’ll notice something. Gold has relatively short periods where it rockets up and then longer periods where it does nothing (or worse).
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
If you’re an expert market timer, then you can obviously profit from buying during the uptrends and avoiding those long periods of underperformance. Unfortunately, during my time in this business, I’ve noticed something. There are very few investors who have even a remote shot at successfully timing the market. For most of us then, it’s the long term that we should concern ourselves with.
So how does gold do over the long term?
Here is one way to think about gold prices. Two hundred years ago, an ounce of gold could have afforded you one quality men’s suit. Today, that same ounce of gold will also buy you a high-quality men’s suit. In other words, it does a fantastic job of preserving purchasing power over the long term.
Physical gold has its plusses and minuses. There’s nothing quite like holding a bar of gold in your hand. And if we’re ever in some sort of doomsday scenario — the grid has collapsed, paper currency is worthless and so on, you’ll likely want your gold close at hand. Of course, hoarding coins and bars can make you a target for thieves. And since the IRS classifies physical gold as a collectible, you may be taxed at a steeper tax rate (currently as high as 28% on long-term gains) if you ever need to sell your gold.
Investing in gold without buying bars
Fortunately, there is more than one way to invest in gold. At SAM, we take a four-pronged approach. Part of that is owning physical gold, but there are three other categories that can benefit when the price of gold appreciates:
Major miners. Stocks of the largest companies that explore and produce gold, like Newmont Corp. (NEM) and Barrick Gold Corp. (GOLD), can be attractive at the right prices. They have operational leverage, meaning that while the price of gold rises, their costs stay the same, which can result in windfall profits when gold is a hot investment.
Emerging producers. This is the high-risk, high-reward part of the gold universe. Some of these companies don’t even produce gold. Rather, they are valued on their “pounds in the ground.” The lack of an operating history means these stocks carry greater uncertainty, but they can trade at a fraction of the value of their proven gold reserves.
Royalty companies. These are like banks for the mining industry. They provide capital to miners in exchange for a percentage of their production. Royalty companies have few employees and low overhead costs. When they’re not hunting for deals, they pretty much sit back and collect money. This superior business model has resulted in high profit margins and outstanding returns over time.
Is gold for you?
Whether you should own gold, how you should own it, and how much you should own ultimately depends on you and your financial goals. If capital preservation over the long term is a top priority for you, that argues for a larger allocation. But if you are growth- or income-driven, perhaps a small bit of exposure makes more sense for you. This sort of planning can be done on your own or with the assistance of a financial adviser.
Just know that if Costco is yet again out of stock or limits how many gold bars you can buy, you have many other options.
Related Content
- Disgusted With Your Savings Interest Rate? Time to Switch
- How to Find the Best Gold Stocks
- Why You Shouldn’t Ignore Investing in Commodities
- The Best Gold ETFs With Low Costs
- Why I Still Won't Buy Gold: Glassman
-
I'm in my 50s and thinking about prepaying my own funeral. Is it worth it?We asked financial experts to weigh in.
-
Medicare Open Enrollment: Why You Need to Pay Extra Attention to Part D, From a Financial AdviserThe lowest premium for prescription drug coverage might not actually save you the most money. Make sure you take copays into consideration and do the math.
-
Medicare Open Enrollment: Why You Need to Pay Extra Attention to Part D, From a Financial Adviser
The lowest premium for prescription drug coverage might not actually save you the most money. Make sure you take copays into consideration and do the math.
-
How the One Big Beautiful Bill Will Change Charitable GivingTaxpayers who don't itemize will be able to take a bigger deduction for donations, which could boost giving. However, high-income donors could see their tax benefits reduced.
-
A 'Fast, Fair and Friendly' Fail: Farmers Irks Customers With Its Handling of a Data BreachFarmers Insurance is facing negative attention and lawsuits because of a three-month delay in notifying 1.1 million policyholders about a data breach. Here's what you can do if you're affected.
-
Serving the HNW Market: How Financial Advisers Can Break Through and Deliver Lasting ValueFinancial advisers have a significant opportunity to serve high-net-worth clients by elevating their capabilities, delivering comprehensive planning, building diverse teams and prioritizing family wealth education.
-
Don't Just Sell, Connect: How Financial Advisers Can Ignite Their Sales GrowthAvoid complacency and embrace small, consistent improvements to optimize your sales process and results.
-
Are You a Small Business Owner Buckling Under Economic Pressure? Here's How You Can CopeSignificant emotional and financial challenges, including tariff worries, are piling up on small business leaders. Here's how leaders can develop more healthy coping strategies and systems of support.
-
To Raise Prices or Not to Raise Prices: Tariff Tips for Small BusinessesSmall businesses are making critical decisions. Should they pass on higher costs due to tariffs, or would that only cost them more in lost customers?
-
Five Retirement Planning Traps You Can't Afford to Fall Into, From a Wealth AdviserTo help ensure you reach your savings goals and enjoy financial security in your golden years, be aware of these common pitfalls. The key is to be proactive, informed and flexible.
