Oh…My…Gold! The ultimate hedge, the best store of value, an ancient currency, or all of the above?

Rich Elliot and Alisson Oliveira work for a company called MyGold – they’re gold dealers.

Owning physical gold is not something that is normally recommended in the mainstream world. From an educational point of view, you may have done a degree in finance but the merits of owning physical gold are perhaps still a mystery to you – it certainly was for me. This is one of the great mysteries of building wealth. Why are some of the potentially more effective ways to build and store wealth, kept secret from the majority of people?!

Here are a few thoughts on this episode…

Is Gold a ‘hedge’?

Life insurance is a hedge. Bad stuff happens, and your family receives a lump sum of cash to offset some of the negative impacts associated with loss of life.

If you had a % of your wealth tied up in gold, would the value of this investment increase to a point where it’s effective in offsetting some of the losses held elsewhere? Sort of is the answer here. Significant increases in the value of gold occurred around the major negative economic events of 1929-33, 1969-70, 2001 and more recently this year where we’ve observed a 20-25% increase already.

Not everyone agrees that gold can be an effective hedge however, and this article contains a perspective to the contrary. Another slightly controversial take is the #dropgold campaign launched by some rather keen crypto-enthusiasts.

With what I’ve learnt over the last 6 months about gold, I’d suggest that gold will indeed shine in the next recession, but not all that shines is in fact gold.

Financial-ised gold vs Physical gold?

You can benefit from the price movement of gold and not actually have to physically hold it. If you come from a traditional paradigm where you view the amount of wealth you own in terms of currency (say, USD), holding an ETF in say GLD, may be an option to consider. Craig’s Investment Partners have a DIY KiwiSaver option where you can own this ETF in GLD for your KiwiSaver.

A purist ‘gold-bug’ however, would always prefer to hold the physical element in their hot little hands (or white gloves). Why? It seems the main reason physical is preferred over the financial, is that if you truly buy into owning gold, chances are you have a higher than average distrust for the current financial system. It makes sense when you think it through – if there was a catastrophe, you’d want to convert your contract to the physical as soon as you can. When you dig a little deeper however you learn that many of these ‘paper’ assets are in fact derivatives. They work to a point, but in an extreme situation (financial Armageddon) when everyone’s running to the vault, there’s no gold to be found. (If this area is of interest, search ‘gold market manipulation’)

It’s really easy to get lost in the weeds with this topic though (and quite fun just quietly) – I do believe however, that if you’re into building and storing wealth, this should be one of the foundations to understand first before moving forward much further.

There’s a good book I thoroughly recommend in fact, called ‘The Death of Money’ by James Rickards. Check out a wee sample of it here, but I’d really recommend this book if you want to understand how central banks work in greater detail and how gold worked(s) in the past/present/future. I’d suggest it’s written an a more ‘intermediate’ level so if that’s too technical, check out YouTube for Mike Maloney or Peter Schiff to get started.

So, how does owning physical gold help you, the everyday investor?

Based on my current understanding (keep in mind I’m still learning too!), owning physical gold should not really be a means to an end, but it could be an end unto itself.

Building wealth occurs in the plane of the present financial/monetary system, an interweb of various players operating with varying degrees of information (ie – not a level playing field). Gold and Bitcoin are anathematic to the status quo.

I love talking about anything that can help the everyday Kiwi build and store wealth. The decentralised (be your own bank) aspect of physical gold and Bitcoin appeal to me as it puts the power in the hand of the investor, not the system.

It appears to me right now, that ‘using’ the current system to generate ‘fiat’ money (currency sponsored by our central bank) is the best way to go. After all, the majority of market participants have faith that currency is money – so while that faith is strong, carry on. Nothing to see here.

What seems wise to me however, is to translate some level of wealth from fiat currency to physical gold (or Bitcoin!) if possible (that’s not advice, that’s just me sharing what I’m thinking remember!). My traditional portfolio is the engine, but the receptacle could be physical gold (a more timeless store of wealth).


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Hope you enjoyed this episode – thank you to MyGold for their support in making this episode possible.