Like many other investment assets, gold has always carried many myths.
Although gold might have the upper hand in popular culture — not sure Bond movies would work as well if they were titled “Treasury-bondfinger”, “StockoptionEye”, or our personal favorite, “The Man With the Bitcoin Gun”.
But myths can act as a deterrent for some investors when it comes to building a precious metal portfolio.
So to set the record straight, here are 5 of the biggest myths about gold, debunked.
Myth #1: Gold is only for wealthy investors
In fact, no. Investing in physical gold doesn’t require a lot of money. While it’s common to imagine a stack of expensive 1 kg gold bars, most investors will start with more approachable products such as 50 g gold bars, 1 oz gold bars, or even 1 g gold bars.
There is one gold product for every portfolio. And even with a moderate budget, you can follow the DCA strategy and buy a small amount of physical gold in ingots or coins at regular intervals (if you’re looking to understand what to start with, you can check our savings assistant).
Myth #2: Gold is overvalued
Right now, the exact opposite seems to be true.
This myth is likely stemming from gold’s good performance over the last 20 years.
As global gold investment demand grew by an average of 14% a year and the price of gold increased by almost four times in euro terms, skeptic investors started wondering how much higher the metal could go.
With last year’s investor rally and the gold price reaching an all-time high in August 2020 proving gold still had room to grow, this still wasn’t enough to convince the most skeptical investors of the metal’s potential.
But with a bullish momentum now growing, and with key indicators such as the S&P500-to-gold ratio showing gold as undervalued compared to stocks, now looks like the time to set that myth aside.
Myth #3: Rising interest rates are bad for gold prices
We’ve been hearing a lot about inflation lately, and about how the Fed plans to increase interest rates in 2023.
And while many still view higher interest rates as bad for gold, this is yet another myth that needs debunking.
As we’ve mentioned in one of our previous SPOTLIGHT issues, there’s actual historical data showing that rising interest rates don’t have much impact on gold: In 1973 and 1974, at a time when interest rates were rising, gold prices increased by more than 60%, while the S&P 500 dropped by more than 20%.
This suggests that, in some situations, rising interest rates may even be bullish for gold prices, partly because they tend to be bearish for stocks.
Myth #4: You shouldn’t own physical gold
Gold skeptics love to say that buying physical gold is outdated, and that there’re some alternative ways to invest in the precious metal, like ETFs, gold futures, or mining stocks.
But all that glitters isn’t gold, and these gold-related assets each carry their own risks:
- Buying an ETF means you don’t actually own the physical metal but its paper form. So if the holder of the physical product defaults or flat-out doesn’t have the product, you will incur losses.
- Gold futures require a high level of expertise in the gold market, and a hands-on approach to gold investment in the event that the market goes through a phase of instability. So they’re clearly not for everyone.
- As for mining stocks, while their price will somewhat follow that of gold, it can also be heavily affected by outside factors: local or national regulations, supply chain issues, competition risks, technical or mechanical problems, etc.
So if you want to own gold as a safe haven investment, buying physical precious metals remains the best option for investors looking to avoid those risks.
Myth #5: Gold is difficult to buy and harder to store or sell
Well, this one can be true, except if you choose a reseller with a free and secure storage solution and the possibility to resell your physical products at any time with 0% commission. 😎
