If you’re one to keep up with the news in the wonderful world of Wall Street, you’ll already be aware of the ups and downs that gold has been through lately. As of July 20th 2015, an ounce of gold was down $24.60, or 2.2%. Last week, gold tumbled more than 2%, dipped below $1,100 to $1,080 — its lowest level since February 2010, and was down 4.6% before recouping some of its steep losses.
The good news in all of this (yes, there is some good news), is that the reason that gold is taking a bit of a dive, is due to the state of the U.S economy. When the economy does well, it takes away some of gold’s value and reputation as a big player in hard economic times, and now that the U.S dollar is rising the fastest it has in 40 years, again, unfortunately for gold, that means its value is decreased even further.
The reason that we brought out those statistics is that we want to talk about the very active life of gold, and some of the concerns that play a huge role in your decisions to invest in it.
Concern #1. The fate of gold and the Stock Market are bound together
This is a big concern that’s been around for a long time that people hear a lot of, that when gold is doing well, that’s when the Stock Market is taking a tumble. But what we want to know is if there’s merit to these claims. According to Investor Place, there has been an unreliable correlation between gold and stocks over time. Since the beginning of 2005, the SPDR Gold Shares (GLD) has had a correlation of 0.14 with the S&P 500 Index. Correlations run from 1.0 to -1.0, with 1.0 indicating two securities move in tandem, -1.0 showing that they move in completely opposite directions, and 0.0 showing no correlation at all. As a result, the 0.14 number underscores the lack of a consistent relationship between stocks and gold.
Concern #2. Gold is foolproof
As we stated earlier in this article, gold is really at a low at the moment. And unfortunately for the gold enthusiasts, it’s most definitely not a safe bet, or foolproof. It’s quite the contrary. Gold has a low expected return, high volatility, as well as terrible tax treatment, as it’s taxed as a collectable at a 28% capital gains tax.
Concern #3. It has no long-term value
Markets move. There’s a reason for the old saying, “what goes up, must come down”. And vice versa. There is a time for every move in the market, based purely on cyclical and technical factors. So if you get stuck to any one particular theory, i.e. that gold will never make it back as a driving force in the market, then you could get caught out of the game, and with your proverbial pants down.
Regardless of the concerns listed above, there are a million reasons that you would or would not want to invest in gold. With any investment, you have to be willing to take a bit of a gamble, and worst case scenario, you have to be willing to be lose money. That is just a fact of investing. What this all means for you, as an investor in gold, is all up to you.