By Jamie Bosse

Gold seems to be a popular topic that gets thrown around in conversation, but people generally don’t know a whole lot about it.  What’s the story with gold anyway?

Why do people consider buying gold?

In general, as inflation rises, the value of the dollar normally goes down.  Historically, when the dollar goes down, gold either goes up in value or retains its purchasing power.  This is of course no indication of future results.  Gold tends to be en vogue in times of fear and panic.  It gives people a sense of security to have something that they can see and touch, as opposed to a portfolio of stocks and bonds that seem only exist on paper.

What should I consider when looking into gold?

An old colleague of mine described gold as the “game of the greater fool.”  He said that it is only worth what someone else will pay to buy it from you.  Indicating that when you feel comfortable selling it, you have to find someone else who is fearful of the markets who believes that gold is a good investment.  Gold is a non-producing asset, meaning that it doesn’t create income like a traditional portfolio can.  It may hold its value, but it is not “working” to create more value for you.  Be mindful of where and how you purchase gold.  There have been a lot of scams in this arena, so you need to be sure what fees you are paying on top of the price of the gold.  There may be commissions, handling and delivery fees involved.  Also, if you are purchasing bouillon or coins, you need to have a safe place to store it where it could not be stolen or damaged.

Work with your financial planner to determine if gold makes sense in your portfolio.  You should only buy gold if it helps you accomplish your goals and objectives and fits into your financial plan.  Never buy gold because your neighbor, co-worker, or the guy on the radio said that you should.

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Photo credit: covilha / Foter / CC BY