Is gold a good investment for retirement? Sure, gold is a great investment if you want something that pays no interest, no dividends, and realistically could go twenty years without going up in value. Sounds enticing, doesn’t it?
Seriously, let’s consider why gold would or would not be a good investment.
Historical Gold Prices
If you look at historical gold prices, you can see that the price of gold shot up dramatically in the 2000’s and appears to have peaked in the summer of 2011. Looking back, something similar happened in the late 70’s. After the price increase in the 70’s gold spent the next twenty years declining in value.
After the recent dramatic increases in the price of gold it is entirely possible it will once again languish for a considerable length of time. While it is languishing it is not producing interest or dividends. In retirement you need an investment that either produces current income, or is reasonably expected to appreciate in value so you can sell it in the future and use it for consumption purposes. I do not think gold is something you can rely on for either of these purposes.
Gold as an Inflation Hedge
Many proponents of gold suggest it is a good hedge against rising prices. The facts do not support this statement. The article Gold and Inflation, Gold is a Crisis Hedge not an Inflation Hedge provides a solid analysis on the inflation adjusted value of gold.
Although people flock to gold in times of crisis, if a real crisis occurs, I have my doubts as to how effective a stockpile of gold would prove to be.
Instead of gold check out Inflation in Retirement and What You Can Do About It for a handful of valuable inflation hedging ideas that actually work.
If you stockpile gold somewhere safe, and a crisis occurs, how are you going to use your gold to provide useful goods and services? Do you think people are going to start pulling out their kitchen scales, weighing gold and trading it for eggs and chickens? If a real crisis occurs there are numerous things I’d rather own than gold; things like batteries, guns, solar panels, chickens, a garden, and oil and gasoline.
Gold for Speculation
I do not think gold is a good investment for retirement. The article Why Invest in Gold expresses the opinion that “Gold itself is speculative, and can have high peaks and low valleys. That makes it too risky for the average individual investor.” It also makes it pretty risky for the average retiree. Instead of speculating, most retirees ought to spend time on building an asset allocation plan designed for retirement.
I do think gold can be a good investment for speculative purposes. If you had the foresight in 2007 and 2008 to see a major financial crisis coming, you could have speculated and bought gold on the anticipation that it would become popular in the face of a crisis. In such a situation instead of taking possession of actual gold bars or coins, you can buy a mutual fund that owns gold which allows you to buy and sell it quite easily. Of course in hindsight it is easy to see what you could have done. Recognizing these situations in advance is difficult to do and it's usually random luck, not skill, that results in decent returns from the practice of speculation.
Now that the bulk of the crisis is behind us, if I had more than 2-3% of my assets allocated to gold, I’d be looking to begin selling it off and reduce my exposure to this volatile asset class.
Gold for Fun
If you want to invest in gold as a hobby, go for it! Like any hobby, it might turn into something profitable and if it doesn’t you’ll have some fun and learn along the way. From some tips on getting started check out Guide To Investing in Gold Coins and Three Things You Should Know Before You Buy Gold Coins.