Should you buy gold and silver instead of playing the stock market?


Fact Box

  • The history of gold goes back to 4,000 BC in Eastern Europe, where the precious metal was used decoratively, but it wasn't until 1,500 BC, in what is modern-day Egypt, that gold was deemed 'the recognized standard medium of exchange for international trade.' 
  • Fort Knox in southern Kentucky is also home to the US Bullion Depository, which stores 'about 4,600 metric tons of gold worth close to $200 billion. This represents 2.5 percent of all the gold ever refined.'
  • The gold standard, a 'monetary system where a country's currency or paper money has a value directly linked to gold,' was halted in the US in 1933, when currency switched to fiat money.
  • Of all metals, silver is the best conductor of heat and electricity and also the best reflector of visible light. Additionally, silver has medicinal properties and has been used to prevent infections for hundreds of years.

Belvin (Yes)

The stock market is volatile and, in times of trouble, may collapse--like it did in 1929 and again in 2008. Akin to gambling, the stock market is unpredictable, and investors can lose it all. But precious metals like gold and silver have a low correlation to the stock market, meaning gold is a hedge against inflation. If you own gold and silver, you will always own their value, as opposed to stocks which you can't truly possess.

It's not hard to sell gold and silver either, as they're considered 'highly liquid assets,' which are very easy to determine pricing for and sell. In fact, they're so high in liquidity that you could exchange them for cash on the spot. Fiat money and stock values fluctuate with the economy, but gold retains its value.

Since the beginning of time, gold has been valuable because it is “abundant enough to create coins [with] but rare enough so that not everyone can produce them.' If there were an economic crisis, you could still trade in gold. Many investors even have gold and silver hedges for that very reason because their value increases during stock crashes.

It's not a bad idea to invest in the stock market, but if you're sitting on a pile of gold, you won't have much to worry about if those stocks disappear or the economy collapses. With gold and silver, you don't even have to pay all those brokerage fees that go along with investing. 

Finally, there’s an element of fun in owning precious metals that investing in stocks just doesn’t have--you could always bury your treasure for future generations to find long after you’re gone. 

Bill (No)

Investors would be wise to invest their funds in the overall stock market rather than buying gold or silver. Historically, the broader stock market has been a much safer, more financially rewarding place to invest your money than has gold or silver. For example, the price of gold hit $1826 per ounce in August 2011 and didn’t see any appreciation for nine years! In fact, four years after hitting that lofty peak, gold prices had fallen over 42%; imagine how devastating that would be to a retired couple who were depending on gold to provide replacement income.

When you invest in a stock market index fund, you’re investing in the US economy while limiting your risk exposure. Some sectors will naturally outperform others at any given time. But your downside risk is limited by diversification. When you invest solely in gold and silver, you assume much more risk because you’re not diversified; there is no safety net if gold and silver are out of favor. And who better to take advice from than billionaire investor Warren Buffett, who has touted the pragmatism of investing retirement savings in market index funds.

Ironically, gold and silver have not rewarded investors for the additional risk they assume. For the past 35 years, in good markets and bad--and through multiple recessions--the stock market, comprised of large-cap stocks like Apple, Amazon, Microsoft, and Alphabet, has handily outperformed gold and silver by a factor of 3:1 (i.e., 10% to 3.3%). In essence, gold and silver offer the worst of both sides of investing: high risk and low returns.

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