Q&A: "Is gold worth the hype?"

Gold is one of those topics that is somehow elusive but also center-stage. It’s like airplanes. You’ve seen them in the sky, maybe you’ve been in one— in the pre-pandemic days I basically lived on airplanes. But do I know how they work? Nope! I just trust the process. Gold is the same. A lot of people know that gold is valuable and that many people advocate for gold as an investment. But what does that actually look like? How do you invest in gold? Where do you even get gold? Today's reader wants to know if an investment in gold is a golden idea.

Here's the question we'll be tackling today:

Hey Nicole! My name is Ethan and I live in Chicago. I was listening to your Money Rehab episode with Guy Adami and was really interested in your conversation on gold. I’ve seen online that public opinion is kind of split. Some people are super into gold as an investment, and some seem to think it’s kind of dumb. What do you think? And also, if it is a good idea, where do you get gold?

Gold: yay or nay?

Ethan, I totally see the same split public opinion online. It’s hard to know who to believe. Some people tote gold as the be-all-end-all of investments, while others say investing in gold is just a scam you see on late-night commercials. So let’s settle this once and for all.

In the finance world, gold falls into a category of investments called commodities. In general, commodities are divided into two categories: hard and soft. Typically, soft commodities are things that are grown like corn, sugar, cotton, and coffee. Hard commodities are things that are drilled or mined like crude oil, natural gas, aluminum, silver, and yes, gold.

For the folks outside of the finance industry, the most common commodity to get involved with is gold. Gold doesn’t offer dividends like stocks, but it is considered a “safety” or “safe haven” bet— although the price of gold itself isn’t guaranteed to be stable. Some people think that if paper money fails, gold will save the day. I mean, that’s a little bit of a zombie-apocalypse-scenario, but it’s true. The other reason many investors have a little bit of gold in their portfolios is as a protection against inflation.

If you're new to the financial lingo, inflation is the condition where the cost of goods is more expensive than it used to be. It’s why movie tickets were five bucks in the good ol’ days and they are fifteen now. Historically, gold has been a good hedge against inflation of the US Dollar.

How does one invest in gold?

If you’re sold on gold, there are a few different ways to invest— and that is pretty much true of all commodity investments. The simplest and also the hardest way is buying the actual commodity, because that means having gold bars or coins lying around your pad. That never seemed ideal to me, especially when I was storing my sweaters in the oven for lack of space in my apartment.

The next simplest way to go is with a public company that produces a commodity like Rio Tinto Group for minerals or Archer Daniels Midland, which processes wheat, corn, cocoa, and other agricultural commodities.

Or, if you don’t want to put all your eggs in one basket, you could buy a commodity exchange traded fund (or ETF). I’ll get into this more in other articles, but ETFs are slightly similar to Index Funds in that you’re not buying stock in one company. Commodity ETFs would have a smattering of commodity-producing companies in the fund.

Historically, inflation has increased and I think it’s reasonable to assume it will continue to do so. So I’d recommend that in your portfolio you do include some hedge against inflation. I’d keep in mind that gold is a really common hedge, but it’s not the only option, there are plenty of others like Treasury Inflation Protected Securities (TIPS). So if you can’t get those late-night gold infomercials out of your head, keep reading the Money Minute to learn about other hedges against inflation.

xo,

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