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Chapter 1: Why is gold experiencing a surge in price right now?
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Hey, it's Marielle. I lost a gold hoop earring the other day, one of several pieces of jewelry that I have recently disappeared. And my first thought was, I clearly cannot be trusted with real gold jewelry because have you seen the price of gold these days?
Gold has just been on this record-breaking tear. And now the price has been going up for a few years, but last year was the best year for gold since 1979.
This is Maria Aspin. She's a finance correspondent at NPR. And she says gold tends to be seen as a safe haven investment when things are looking scary in the world.
It's sometimes called part of the fear trade. So in the past year, we've had a trade war. We've had a real war in Iran. We've had an energy crisis where we've seen concerns about inflation still not being under control. And gold is often seen as a hedge against all of that.
So maybe you're wondering, should I get in on this if gold is doing so well? And I have heard a lot of ads on YouTube and podcasts suggesting exactly that. On this episode of Life Kit, I talk to Maria about this. We'll go over what it actually means to buy gold. You don't necessarily have to own the physical stuff.
Whether it's a good long-term investment because the price is super volatile and how its returns compare to the stock market over time. Maria, you just shared some of the reasons that people are buying gold right now. I think in a lot of cultures, too, that's just the thing you do.
You buy someone gold for their birthday or when they graduate, and it's seen as more reliable than the currency in some countries. So I wonder, is there a currency element in the U.S. as well now where people are like, the dollar's value is dropping, so we're now more bullish on gold?
Yeah.
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Chapter 2: What factors contribute to gold being seen as a safe haven investment?
Maybe it's a good investment. I don't want to be left behind.
Right. When we say gold prices are going up, what are we actually looking at? Is this the price of an ounce of physical gold?
Yes, it's the price of an ounce of physical gold, but there are a couple of different prices. There's the spot price, which is what it is to buy gold on the spot, meaning right now, or there are gold futures, which is... like any other future, a contract that an investor enters into to buy gold when it hits a certain price.
Now, spot gold can often influence the price of futures, and they tend to be connected. Sometimes there's a big difference, but often not. Gold jewelry has long been a way of buying gold, a way of, like, storing value and giving people gifts or making sure that your loved ones has something that has an inherent worth in and of itself, right? We could go to Costco today and buy some gold.
So when we're buying gold, it could be literal gold bars, but there are also lots of other ways to buy gold.
Yes. And frankly, when we're talking about should you buy gold as part of your broader investment portfolio, we're probably talking about some of the less literal types of gold. So you could buy into their exchange-traded funds or ETFs that are pegged to the price of gold.
You could also buy into companies or funds backed by the stock of companies that are like in the gold industry, so like mining companies. I mean – Literally, the companies selling the modern-day equivalent of picks and shovels.
Why would you choose one of these options over another if you were going to buy gold?
So jokes about Costco aside, there are things you have to think about with each type of investing in gold that you're considering. And let's say investing in precious metals more generally. If you're buying the physical stuff, you have to think about where are you going to store it? Do you have enough space? Is it secure? Are you worried about like... home invasions or robberies?
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Chapter 3: How can someone invest in gold without owning physical gold?
And as we've seen in the past year, there's kind of an element of like FOMO right now. You know, the price of gold has been going up. So should I buy gold? Because I don't want to miss out on this investment that's going up and up. One investor I talked to called it the momentum trade. And, you know, that comes back to gold. Central banks are buying more into gold.
So retail investors see the price go up and they buy more into gold. And that's all great until something happens to kind of snap the spell. And we're all like, oh, wait, maybe we are overexposed to gold right now.
How does gold compare as an investment over time to, say, investing in an S&P 500 index fund?
Over the long haul, the stock market outperforms gold. You know, there have been years when gold has outperformed the stock market, but over like the last 30 years, the S&P 500 has returned about 10% and gold has returned less than that. It's over the last 30 years or so, gold has returned more along the lines of 8%.
Okay. It seems like, particularly in this moment, it would have been a great time to buy gold a year ago, with the benefit of hindsight, of course. But now that the price is so high, as you mentioned, if you did want to buy gold, would now really be the time?
Personally, I'm not sure it would be. But, you know, I'm not a certified financial planner, but I've talked about it with certified financial planners like Lee Baker. He is the founder and CEO of Claris Financial Advisors in Atlanta.
There tends to be, in my opinion, some overhyping of gold in that now it's sort of like, hey, gold doubles, triples, and blah, blah, blah, blah. And there tends to be a push where people are cajoled, coerced. led into what I would say is an overly aggressive allocation of gold because it's doing well.
We know that looking in the rearview mirror to set your priorities and how you want to allocate your assets is a bad thing to do.
I think that's just so important for any kind of investment. Like, don't buy into something just because you're looking into the rearview mirror and it's done really well in the past.
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