Gold as an Asset Class: How Important Is it?

By John Otis

March 29, 2021

As Featured In:

Some links within this article are from our sponsors. We provide reliable, and accurate information. Read our Advertising Disclosure. 

There’s been plenty to worry about in the past year of the pandemic-dominated economy. However, it’s certainly taught us some important economic lessons.

One of the greatest is that we can’t just fall back on old ways, relying on the dollar. But if we’re not investing in paper currency and assets, what do we have?

You don’t need to think about it too hard. An answer is a form of currency that’s far more attractive: gold.

Gold has its place in our modern economy. It’s currently listed at around $1,800 an ounce, and it’s poised to go up even more as the dollar becomes further weakened.

There are numerous explanations for gold’s surge. It doesn’t follow the dollar’s trajectory. In fact, gold tends to prosper when the dollar is in a slump. With so many adults having lived through at least one recession, economic stress is a reality that we can’t just shrug off.

If you’re wanting to retire securely, you shouldn’t see stock and bonds as your only path to it. We’re going to talk about the value of gold as an asset class for your portfolio.

We’ll also show you how you can invest in an uncomplicated manner.

The Surge Is Coming

Although gold has hit as high as $2,000 an ounce, it wasn’t always that rosy. For a time, it was circling at around $1,100 an ounce. However, good things come to those who wait, and gold investors had something to celebrate in 2020.

In 2020, the price of gold went up more than 28 percent. It’s also beaten past records and is poised to rise even higher for several reasons, including lack of faith in governments and central banks due to their excessive money printing and reckless deficit spending.

So, the pandemic isn’t the only reason for economic anxiety. Sure, it definitely made things worse, but things were already in a slump before then. In a year of limited travel access and totally justified fears of illness, the economy has suffered.

The World Economic Outlook projected the global economy falling 4.9 percent in 2020. While that might not seem significant, it’s two percentage points under their prior estimate.

To fight this, world leaders and institutions have tried measures like bond-buying plans, stimulus plans, and rate-cutting to prevent a total economic blowout.

However, these can feel something like bandages on wounds that are bleeding profusely. Gold could be the life-changing surgery the economy has needed for decades, if not longer.

Performance During Recessions

Gold’s use as a currency is documented throughout human history. It’s still beneficial today. Not only does it serve a monetary purpose, but it’s also essential for many industries. Electronics couldn’t run the same without gold. Investors know that gold is a lifesaver during times of economic unrest.

Incrementum shows that gold shines during drops in equity prices. If we analyze data from the 1970s through today, we’ll see that gold had bested stocks in three of four recessions. The Great Recession saw gold hitting new peaks.

Gold has benefits aside from helping protect investors during recessions.

With decreased rates from central banks and quantitative easing, more “cheap money,” inflation has accelerated. Thankfully, gold performs well during increased inflation.

Stocks usually do the best when the economy is strong. However, if the economy is faltering and inflation is happening or looming, gold is your friend. In the 1970s, gold's price went up by nearly a factor of 15. It shows that economic difficulties and solutions don’t really change that much, from decade to decade.

Central banks are also buying a lot more gold today. Major countries like Russia, India, and China have restarted their gold purchasing. In 2020, the Central Bank Survey found that over 20 percent of the banks said they planned to purchase gold within the next year. In 2019, only eight percent of banks said they would do so.

With forecasts of increased inflation, the coronavirus stifling the economy, and more banks buying gold, it’s hard to think about what other signs a potential investor might need. Even when the pandemic ends, there’s still going to be a lot of economic fallout to deal with.

Adding Gold in Portfolio

The amount of gold allocation in portfolio you have depends on many factors. The current economy, your personal risk tolerance, how close you are to retirement are among the top three things to consider. 

If the economy is great or you have a higher risk tolerance, stocks will tend to perform much better than gold for you. In this case, 10-20% allocation can be a sweet spot.

However if you are close to retirement, many advisors will say that 50-75% is ideal, since you don't need the massive upside and just want to protect your savings and comfort in retirement with the stability of gold. 

Given the current state of the economy because of the worldwide pandemic, many analysts are very bullish.

Since more people are learning about the pros of gold, analysts have increased their price projections. Multiple experts estimate that gold could reach as high as $10,000 an ounce in the year few years. 

Investing is about the future, and gold seems to have a remarkably bright future ahead. However, how are you supposed to do it, especially if you’ve never invested in any precious metals?

You can purchase gold in physical form, such as in coins and bars. This is appealing if you appreciate tangible items and their aesthetic value. However, there are also fees on top of this, like paying for insurance and storage.

Another option is starting a Gold IRA. This is great if you’re looking to retire and don’t solely depend on stocks and bonds. You can also get your current 401k rolled into an IRA. Lots of people do this for tax advantages. Being able to retire is a blessing, and it’s not one you should become complacent about.

However, if you are interested in actively investing, we suggest gold-supported exchange-traded funds or ETFs. You could also invest in gold mining stocks. These have fixed rates, which can give you a leg up as gold prices increase.

Is Gold an Asset You Need?

So much advice about improving your financial situation is generic and obvious. You’ll hear about how you should spend less on eating out or put aside a certain percentage of your savings each week. However, significant porfolio appreciation most times comes from significant change.

Do careful research to find a trustworthy gold dealer. You don’t have to spend every dime to your name to get quality gold. Look at reviews and guides to see which dealers are legit.

Your portfolio has room for different types of assets, including gold, stocks, and bonds. A lot of financial advisors don’t want people to know about gold, and others tend not to recommend it because they don't get high commissions for that recommendation. This is your time to fight back.

They disdain it because they don’t get fees from gold, which does best when their bread and butter are in disarray. You’re like the audience member who now knows the magician’s secrets.

Whether you invest in physical gold, stocks, or ETFs, you have a much wider road to financial stability. A plus of physical gold, compared to paper varieties, is that you don’t have to meet any value-realizing demands.

Bottom Line

The economy is a tricky beast, and if it can’t be tamed, it can undoubtedly be observed so that you stay out of its vicious claws. Gold is an excellent mode of defense for any portfolio, no matter how long you’ve been investing.

There are hundreds of gold dealers but only a handful that have great reputations and reviews online. The summary of the top 3 gold companies are below, but for more details, you can visit this page

  • Thousands of 5 star reviews
  • Top overall choice
  • Excellent customer experience
  • A+ BBB rating
  • Free gold investing kit
  • 4.96 overall rating on BBB
  • Excellent customer reviews
  • No cost portfolio review
  • Great leadership team
  • In business since 2003
  • Solid reviews
  • Great educators

John Otis

About the author - John Otis

In the modern age of reckless government spending and central bank money printing, my sole objective is to help others protect their savings, retirement, livelihoods, and purchasing power from currency devaluation. Otis Gold has been featured in Financial Times, Yahoo Finance, Kitco News, Motley Fool, Seeking Alpha, and more. If you have any questions or comments, leave them below. Welcome!

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}

Never miss a LATEST NEWs!

 Subscribe to our newsletter!