Thinking of Gold?
By Randell Tiongson on October 16th, 2009My earlier blog (Should you start buying US Dollars?) may has spurred a lot of discussion on alternatives to the US Dollars and one of them is Gold.
Gold has been a financial instrument for the longest time, even predating minted money by a mile. Every time there are reversals in the economy and the market, you will always here that gold is a better investment as they really rise in value. Do they? Yes… but by how much? Like any form of investment, you will see good years and bad years but when you look at the long term performance of gold itself, one will really wonder if it’s really a better investment after all.
From the data I gathered, the 30+ growth rate of gold was just about 5% p.a. It doesn’t really look like that great of an investment to a lot of people. But then again, the value of gold doesn’t really collapse especially during financial reversals so it does have its strong points too.
So where should you put your money? Well, that’s a tough question and the answer is always “it depends”. It depends on your financial objective, time frame and risk tolerance.
I would like to readers to check on their perspective – growth or security? More importantly, what is the purpose of your treasure to begin with?
“For where your treasure is, there your heart will be also.”
– Matthew 6:21, NIV
*Comment in my Facebook from Rafael Azanza.
Gold has a reasonable place as part of a diversified portfolio, but it is more of a conservative store of value and a hedge against inflation and US DOLLAR weakness (all commodities – for instance oil- tend to move in the opposite direction to dollar moves.)
It should be noted that:
1) an investor carefully picks the currencies he has his assets in – for some time now, US Dollars have been eschewed in favor of the Yuan and the Euro and the Singapore Dollar and the Yen and the Swiss Franc, for instance. No need to focus just on the US Dollar. I converted 90% of my dollars to Eurpos and Yen last year.
2) You don’t just put your wealth in a currency itself, you choose an investment vehicle that EARNS A RETURN.
Gold’s 5% AVERAGE (there have been many LOSS years) over a LONG period of time is easily beaten by any number of bonds and cash-dividend-paying stocks. For instance, I have some money in 7.75% (AFTER TAX, so no deduction for tax) RCBC Bonds, and in blue-chip high cash dividend stocks like Globe telecom (about 11% cash dividend yield) and BPI (about 7% cash dividend yield.)
Since I am in my sixtees, I tend to be conservative, and the RCBC and other bonds earn EVERY YEAR, plus the Peso appreciates against the dollar so there is that gain too, against the dollar. Gold earns no interest, only appreciation AND depreciation, in price.
As Randell says in his blog, “It depends on your financial objective, time frame and risk tolerance.” Gold is a reasonable PART of a balanced, diversified portfolio, but it cannot at all be said as a blanket statement that gold is superior to currencies.
When inflationary fears disappears, Gold might correct and go below $1000/oz.
Where can we buy physical gold bars and bullions in the Philippines? Is it legal to own bars in the Philippines? If we buy from abroad and bring them home, do we need to declare them and pay any taxes?