Gold Update

Dear Dr. Per Cap: 

I wrote about six years ago when the price of gold was climbing just like it is now.  You urged caution before investing in gold.  Do you still feel that way?

Signed, Golden Girl

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Dear Golden Girl,

The price of gold has had a historic run since your last letter.  Over the past two years, gold has reached more all-time record highs than evening chats with Dorothy and Rose listening to Blanche reminisce about old boyfriends.

On January 26^th, 2026 the precious yellow metal traded for the first time at over $5,000 an ounce.  That’s a whole lot of money for a single bullion coin that fits in the palm of a child’s hand.

I still urge caution though, especially for inexperienced investors.  Gold poses challenges when economic and other market conditions impact its value differently than other assets.  A first step is to understand why an investor might choose to buy gold.

Traditionally gold is used as a hedge against inflation and other risks.  For over 6,000 years gold has been a store of wealth and a safe haven during times of turmoil, crisis, and uncertainty.  Wars, natural disasters, and fluctuating currencies can all cause the price of gold to climb.  Investors flock to gold during these times to offset the possibility that more common investments, like stocks and bonds, lose value.

We’ve had a mix of conditions currently driving gold prices – war in Ukraine, another looming federal shutdown, continued tension between the U.S. and China, a weaker dollar in an era of higher inflation, and of course speculators looking to cash in on the boom.

But perhaps the biggest lesson here is that when you buy gold, you’re essentially betting against the U.S. economy.  That’s the irony a lot of folks don’t understand when they get excited to see gold prices soar.

Another issue to consider before buying gold is that owning it can be a hassle.  Unlike stocks, bonds, and bank accounts gold is a physical asset that needs to be safeguarded.  A safe deposit box is one option.  A home safe is another; however, most homeowner’s insurance policies provide only a small amount of coverage for cash, coins, and gold or silver bullion.  Some investors might also pay to store their gold at a precious metal depository.

You can also purchase an exchange traded fund (ETF) that is backed by gold.  This offers the upside of investing in gold without the risk and inconvenience of owning it physically.  In recent years more investors are going this route. Although I admit, an ETF is a lot less exciting than a couple of glimmering 24 karat American Buffalo bullion coins. 

Like before, I won’t tell you not to invest in gold.  However, make sure you understand the risks.  It’s also a good idea to never have more than about 5% of your entire investment portfolio in gold.  Stick with less volatile assets like index funds for the bulk of your nest egg.