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Should You Invest In Gold Right Now?

November 4, 2020 8:45 am
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Should You Invest In Gold Right Now?

The price of gold is up 24.2% year-to-date in one of the most tumultuous years in history so far.

With the possibility of a contested U.S. presidential election and a worsening pandemic in the coming weeks, things could become even more volatile on Wall Street, leading some investors to consider buying gold as a potential hedge against stock market weakness.

There are plenty of reasons to invest in gold heading into the final two months of 2020 — and plenty of reasons not to. Here's an overview of the bull and bear cases.

Related: Is Gold A Good Investment?

Bull Case For Gold: The bull case for gold is that it's considered a stable hedge against inflation. The U.S. government has already issued more than $2 trillion in economic stimulus this year, and a potential blue wave on Tuesday would likely open the door for trillions more in Democratic stimulus in the first quarter of 2021.

Inflation rates have lagged the Federal Reserve’s 2% target rate for more than a decade, but all this money printing may catch up to the U.S. dollar at some point. If inflation spikes, gold prices will too, and gold investors will be protected from the fallout.

The last time the Federal Reserve issued massive stimulus measures was during the financial crisis in 2009.

Gold prices rallied from under $700 per ounce in late 2008 to as high as $1,923.70 in mid-2011. If history is any indication, the 2020 rally in gold prices could continue for at least another year or two.

Bear Case For Gold: Legendary investor Warren Buffett has done a great job of explaining the bear case against investing in gold. Unlike stocks or bonds that produce earnings, generate interest or pay dividends, gold has very little actual utility.

“Gold will never produce anything … it doesn’t do anything but sit there and look at you,” Buffett once said.

To make matters worse, the world’s supply of gold is constantly growing. Although there is a finite amount of gold on the planet, the amount of gold available to buy and sell is increasing by more than 3,000 metric tons per year.

The final case against gold is its historical performance. Since the beginning of 1990, the price of gold is up just 372.1% compared to a more than 1,700% total return from the S&P 500 in that time.

How To Play Gold: The most popular way to invest in gold is the SPDR Gold Trust (NYSE:GLD), which tracks a gold spot price based on gold bars held in London vaults.

The VanEck Vectors Gold Miners ETF (NYSE:GDX) is a fund that holds a diversified portfolio of 54 gold mining companies.

Investors can also buy individual gold mining stocks, such as Newmont Corporation (NYSE:NEM), Barrick Gold Corp (NYSE:GOLD) and Franco Nevada Corp (NYSE:FNV).

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