The Great Guise of Gold

Ryan Heshmati

January 6, 2022

Gold connects to great wealth, success, and safety for many. Paid programming time on major networks is full of advertisements from places like Rosland Capital and US Money Reserve bank on the sales of gold bullion to those looking for safe investments. However, gold's numbers might disappoint those whose retirement funds rely on its strong performance.   

Just finding a trustworthy trader of physical gold is problematic in and of itself. If one can get in touch with a reputable dealer, the prices will likely be over the spot price (the actual melt value of the gold), so the seller can profit. These costs can make transacting in gold costly, unlike stocks where most brokerages now offer $0 commissions to make trades and bid/ask spreads are tiny. 

The hassles of physical gold may make another way to invest in the medal seem more attractive: gold stocks. Trusts like IAU trade on the stock market and can easily be bought and sold without the massive spread of physical gold dealers. While this may be a better choice, it answers the wrong question. One need not wonder what the best way to invest in gold is but if it is best to invest in it in the first place.

Numbers do not lie, and the returns of gold trusts like IAU pale compared to other choices like REITs and the S&P 500. In the last ten years, IAU has had a total return of over negative five percent (As of October 31, 2022), made worse with consideration of the depreciation of the US Dollar. For comparison, the S&P 500 ETF, SPY, has appreciated about one hundred seventy percent (As of October 31, 2022) over the same time.

Many may defend gold's place as an asset of stability in poor economic times to protect against inflation. The United States dollar has seen record inflation in the last year, but gold has not appreciated the difference. Year-to-date, IAU is down over nine percent (As of October 31, 2022), hardly the inflation protection buyers likely hoped for. It is worth noting though, that (As of October 31, 2022) SPY is down about double that percentage, so it has fared better.

While gold is, as aforementioned, often associated with great financial success, it may not be the best vehicle to achieve such a condition. For those looking for solid annual returns, index funds might be worth considering, and for those seeking an inflation hedge, the returns of gold in the current environment could be better.