The Magazine for Asian Investors
What if you bought an ounce of gold every year for the next 40 years?
First of all, I would ask why I should buy gold at all?
Gold has some unique advantages over other investment assets. But not to forget also disadvantages.
- Crisis proof against fiat currency crises. Gold does not belong to any fiat money system. This makes it a safe haven asset. This includes inflation and even worse hyperinflation. Also, the central banks of this world secure themselves with gold. If even the big players are hedging with gold then it can’t be that wrong to hedge with gold.
- Gold has for thousands of years the status as an object of value. In addition, gold is also used for several industrial applications.
- High liquidity. Gold can be exchanged for cash all over the world. How many investment assets can enjoy this privilege?
- Price has steadily increased since the end of the gold standard. When Nixon took the dollar off the gold standard in 1971 the price of an ounce of gold was $35. Today we are at $1812. I think you get the point.
- Gold does not pay interest gains. Gold is a precious metal. Precious metals do not pay dividends.
- Storage costs. Gold MUST be stored safely. Secure storage facilities cost money. Whether a safe with insurance at home or paying someone to store it. Secure storage facilities is a MUST and must be considered.
- Transportation disadvantages. Even if gold can be quickly exchanged for cash, one is reluctant to carry a large amount of gold.
As you can see there are advantages and disadvantages. Although in my opinion the advantages more than outweigh the disadvantages. Investing is also about risk management less about avoiding risks by all means.
Do you need to allocate 100% of your investment budget to gold?
No, you don’t have to.
Should you secure yourself with gold?
So back to our initial question: What if you were to buy an ounce of gold every year for the next 40 years?
Let’s look at some numbers first.
Let’s assume that gold would have the same average growth rate for the next 40 years as it has had for the last 50 years.
Why the last 50 years you ask?
Because almost exactly 50 years ago the dollar was taken off the gold standard. In 1971, you were still paying a whopping $35 for an ounce of gold. Sounds good, doesn’t it?
Almost exactly 50 years later, you pay $1812.50 for an ounce of gold. If we take a linear model that excludes bull and bear markets (I know sounds stupid but makes it extremely easier), gold would have gained almost exactly $35.55 every year. If we follow this growth we will reach $1812.50 in 2021 and $3234.50 in 40 years.
Is that an extremely bullish case? Not really.
I believe the real price of gold in 40 years is very much above that amount.
Why do I believe that?
Well, as crises whether political, economic or fiat currency become more likely I see gold in an excellent position. In addition, the fiat money supply is increasing
more and more and that rather disproportionately.
But it is extremely easy for our calculation. And sometimes it is better to calculate a less optimistic case and be positively surprised at the end.
So continue with our calculation.
In 40 years you would have invested $103,463.50. And the value in 2061 of your 40 ounces of gold would be $129,380.00. A profit of a whopping $25,916.00. Not too much now, but not bad either. I think we all know a lot of people who would be happy to have built up such an investment. And the certainty of having a small security of $129,380.00 feels good.
You can also take this case further and buy 2, 3 or 4 ounces per year. Of course only if you can afford it and only invest what you can afford to lose. Investing is always associated with risks that should be clear to everyone. But leaving your money in your account with ultra low interest rates and about 5% inflation. There is no question of risk here, because losses are certain.
Please note that this is not a financial advice. It is more my belief that everyone should take care of themselves and should protect themselves at least for old age.