I’m sure you’ve all read about the extraordinarily high price of gold in recent months, and how it is seen by many as a good investment option. I don’t consider myself an expert in commodities or gold at all, and I can only give some broad observations and generalizations about gold in this post. I do think it is a fascinating subject. The idea that rational intelligent beings have consistently considered this yellow metal something worth hoarding and killing over is almost unbelievable. Even in our era of floating currencies allowing governments to borrow extraordinary sums to reinvest in their societies, we still see investors of all kinds buy gold at a moment’s notice when times get scary.
I believe that gold is in a bubble. It has to be, for if it became the standard currency for transactions that would mean that the dollar has collapsed and the American economy has gone with it. Much of the world would probably be reduced to bartering, at least temporarily. I don’t believe that is likely to happen. I think gold is bought by investors because of a lack of confidence in the economy and financial markets. Eventually markets will calm down, and people will leave gold behind.
The problem is I don’t know when that will happen. Gold could surge a bit more, I have no idea. I’ve said before on this blog that I am not a speculator. I believe in index investing, which means I do not try to time investments. So while I believe gold is in a bubble, I do not know when that bubble will collapse, and thus I do not know when you should sell whatever gold you own. I just don’t know, and I am not pretending to know. I simply believe gold is in a bubble and cannot go above a certain point in value because that would mean the collapse of the world economy.
What about gold investing for expats? One of my issues with gold investments is the fact that the safest way to own gold is to actually physically own the gold. That means you have to store it somewhere. Storing it is an enormous problem. It is dense. If you put it in your house, it could easily get stolen or misplaced. Putting it in a bank is not really a solution. Banks rarely insure the contents of safe deposit boxes. In countries where deposit accounts aren’t backed by the government do you think safe deposit boxes are a safer alternative? Probably not.
The various paper forms of gold ownership like the GLD exchange traded fund and GTU closed end fund and others all have problems that I don’t really want to get into in this post. Yes they allow you to easily own gold anywhere you live in the world, but they tend to trade at a premium over the actual price of gold (NAV). And then there is the issue that you may not really own the gold at all, that it is being leased out to others at various times. The more I read on the issue, the more it seems like you don’t really own the gold at all. Sure it’s convenient, but it’s not really gold. I am waiting for the other shoe to drop on all these paper gold types. If an investigation uncovered one of them lying about how much gold they own, I think you can expect the price of gold to drop considerably across the board. At least that’s my guess.
I believe gold ownership is largely a fad because of a lack of confidence in stocks and to a lesser extent government bonds. No one has any confidence in anything but the oldest currency in the world, gold. I believe that will change because it has to. The only question is when.
