Almost the first question after “should I buy gold” would be “what type of gold?” Just because gold hasn’t skyrocketed in the last few years, isn’t necessarily the reason to ignore it as a means of investment. People often regret not buying Apple (AAPL) stock when it was less than $100 per share, which lasted until early 2007.
Price, Value, and Diversification
While tech-driven companies can still quickly outpace gold’s liquid value, stocks can still spike right before a Dot Bomb-style fallout. In February 2014, Forbes summed up the “Three Reasons to Buy Gold Now”, beyond the feeling of wealth and safety that it gives. One, gold’s price is at cost. Two, portfolio diversity ensures that you won’t repeat the 1933 overall stock bomb. Three, mining companies are often ‘deep value’ bargain options, with assets that outweigh their liabilities, and a market that underappreciates their low price to earnings ratio.
If companies can’t manage to produce gold at a lower cost, there won’t be as much to buy, which will drive up the prices. Other price increasers include stock volatility, political unrest, and international incidents. With five of the Eurozone countries vying for top bankruptcy spot (see EuroNews), and Russia pushing for elbow room in the Ukraine, there doesn’t seem to be much market for complacency.
On the other hand, if Cyprus’ toying with the idea of exchanging a few tons of gold for Euro solvency was enough to drop the price of bullion – out of fear that other countries would also rush to sell their gold – diversification is a good idea.
The price of gold now nearly matches the cost to mine, purify, and place it on the market in the form of coins. Macrotrends has an instructive inflation-adjusted chart, showing that gold’s price didn’t rise above $600 between 1915 to 1974, though the 1930’s pushed the $600 price to the limit. In the 1980’s, gold prices were a few hundred away from $2,000, only to drop below $400 per ounce in 1999. In August 2011, the price bounded back up to $1,800, while currently you can get an ounce for around $1,250.
Portfolio diversity can be reached, not just by adding more metals, but older and rarer coins. While it’s good to have bullion on hand, getting caught between a mass stockpile sell-off and new bullion coins (per <href=”#sthash.O47eaEzg.dpbs”>Reuters) can make it hard to profit consistently. Numismatic coins, such as the $5 half eagle, retain a rarity value as an antique that goes beyond any current supply and demand features. No one will create the coins in exactly the same year, same quantity, or same metal content as in prior years. That can keep market fluctuations at bay. Like a good wine, a coin or bar will often increase in value over time.
Pay attention to graded coins near the 70 mark of perfection, since the numismatic value decreases in relation to the number of imperfections found in the coin. Examine the metal content, since many older coins have purity levels of 20 karats or less. The minting date and mark also play into value, as pointed out in the Coinweek example of the nearly $1.5 million difference between a 1927 “D” Double Eagle and a regular 1927 Double Eagle ($1,500). However, nothing tops the rarity value of an uncirculated coin in mint state without any marks of wear and tear.