It’s tough to turn on the radio or late-night television these days without being bombarded by advertisements for gold and silver. The commercials usually have the same common themes:
- The end of the world is near
- The US dollar has lost buying power against other major currencies
- Gold and Silver have outperformed equities during the prior decade
- Other random hysteria
Yes, I Dabble in Gold and Silver
I have a small position in the gold ETF GLD, which in retrospect, probably wasn’t the best choice. See, since that ETF is representative of the underlying bullion spot price, it is taxed as a “collectible” at a higher tax rate (details on gold tax rates). Meanwhile, I’ve also made some money on a gold pairs trade when the premium on a closed-end fund got out of whack, which is the case presently for the same silver pairs trade but I couldn’t get the shares to short with my brokerage.
So, in a nutshell, I don’t have a sizable position in either of the precious metals. I’m doing fine watching equities take off and employing some opportunistic trades here and there.
Why I Don’t Plan on Buying Lots of Gold
Primarily, I don’t want to dedicate a substantial portion of my assets to a useless rock. Sure, there are some industrial applications and there’s the “finite supply” argument, but if we ever really have one of these End of Days events that are predicted virtually annually, I don’t think I’d be any better off with gold coins than a waffle iron. At that point, probably only guns, ammo, fresh water and boots have any utility.
From an investment standpoint, if you believe in efficient markets, then the price of gold and silver is already fairly priced in to today’s prices. Gold and silver don’t pay a dividend, and you need to pay for storage and middleman transactions. Some people believe there’s a gold confiscation coming and other government interventions may increase its value, but again, you’d think that’s priced in, right?
But let’s say gold rallies while the dollar crashes, stocks fall, etc. Would I really have owned enough gold to even make a difference? Would I want to dedicate that kind of money to that asset class? People with a vested interest in selling gold will often recommend holding at least 5% in gold. Let’s say you even have a $100,000 portfolio. Gold doubles in a year. So, you made $5,000 while the world fell apart. Would that really matter? It just seems like a bit of a futile chase of an asset that has already outperformed other asset classes, doesn’t pay a dividend, is prone to correction, and has some more onerous tax requirements than stocks.
This isn’t to say gold can’t continue to rise and perhaps even outperform equities over the next several years. But it just doesn’t make sense for me to own it in large enough amounts to make a difference.
Do You Actually Own Gold or Silver? Why or Why Not?