Retirement Planning – Should You Buy Gold As a Retirement Hedge?

This is a question I get constantly, like most decisions in life the answer is: maybe and maybe not! It depends on what you’re trying to accomplish. Historically, gold has been used to hedge against government failure, inflation, economic uncertainty or as an investment. For example, when governments have been on the brink of toppling (wars, coup d’etat, monetary collapse and more) the demand for gold, along with diamonds, soars in that country. Generally as monetary excesses erode the purchasing power of currency (inflation), gold goes up in price. During depressions and recessions (economic uncertainty) gold generally moves up in price. As the probability of any of these occurrences rise, the demand for gold as an investment also rises. If you want to own gold, what is your motivation?

If as an investment, you need to know that gold has, historically, been very volatile in price. For example, in January 2000 the price of gold was about $300/ounce and is currently near $1200/ounce. The low price in 2008 was about $750/ounce and the high was $1000/ounce, and in 2009 the difference in high and low has been about $300/ounce. What’s more, if you buy your gold as bullion or coins, it should be stored in a safe place and that involves an expense. Also, neither interest nor dividends are paid on stored gold and this is an opportunity cost. Additionally, when buying physical gold you have to worry about the credibility of the dealer that is selling you the bullion or coins.

Adding another layer of cost is the fact that you generally buy physical gold at a premium and sell it at a discount. You can skirt many of these problems by buying stocks of gold mining and producing companies, gold future contracts, gold focused exchange traded mutual funds and other financial instruments, but these add another layer of risk: can you liquidate your investment in economic Armageddon? Any way you slice it, gold is a speculative investment and not for the faint of heart or those that are risk adverse. But if you want to take risk and can afford the consequences, investing in gold offers the same challenges as other investments.

Many current-day investors in gold are concerned about “the country going to pot” or Washington just printing so much money it becomes worthless. Some of these investors are real whackos who sit on their pile of gold coins with a loaded shotgun while others have not clearly thought about the end-game of actually using the gold. If the expectation of economic Armageddon followed by bands of armed thugs roaming the country is your motivation for buying gold, there are several things you need to consider.

First, you can’t buy financial products because an economic collapse would shutter the markets and you’d have no way to “cash in”. Furthermore, you can’t leave your gold in a broker’s gold vault or your bank’s safety deposit box, because you might not be able to access it – you must take physical possession which means you’ll need a gun and a safe place to store your treasure. If you hide it, be sure and tell someone else where it is in case something happens to you… and that involves more risk. But, let’s say you h