Debunking Three Myths About Gold Investing

With gold demand up this year, there’s no doubting that many investors are coming around to the idea of gold as a safe haven. But are investors moving in on gold simply because what they believe about gold, or what’s real? And how do you separate the myth from the reality?

Here we’ll explore three popular myths about gold and how they contrast with reality.

Myth #1: Gold Is Merely A Hedge Against Inflation And Nothing Else.

One of the most popular myths about gold is that it is a hedge against inflation. And though this part may be somewhat true (as the price of gold is written in dollars, if the dollar weakens, it tends to mean that gold is stronger) gold is not just a hedge against inflation.

Gold, after all, has been around much longer than the U.S. dollar. However powerful you might feel it is in hedging against inflation, gold is still its own commodity with its own market. As MarketWatch noted recently, gold demand has surged this year. In fact, gold demand came up 21% in the first quarter of the year. Because gold functions both as a consumer good (jewelry) and an investment, it’s subject to the rules of supply and demand, much like any other commodity on the market.

The lesson: Even while the U.S. dollar remains strong, there are other factors that can influence the price of gold and create upward pressure on the yellow metal.

Myth #2: Gold Is Always Very Stable.

Over the long-term, yes, I would agree that gold is a very stable investment. But investors also have to ask themselves, stable relative to what? The U.S. dollar? A specific currency? Currencies are moving up and down against each other all the time, and all you have to do is look at the price of gold to realize that gold’s own price is subject to the whims of the market, just like any other investment.

One argument for the gold standard is that gold is an inherently scarce and stable source of money. This is true. But even those who support a gold standard would acknowledge that gold’s stability in the short term is just as suspect as any commodity out there. It can go up and it can go down, and it can make either move quickly.

Myth #3: Gold Is Inherently Safe.

If you own physical gold, then this myth is easily debunked. The truth is, gold is as safe as you make it. If you keep your gold in a well-reputed bank that hosts secure safe deposit boxes, then yes, chances are that your gold is very safe, especially when compared to other investments. If you keep your gold in a lockbox at home, or worse, somewhere subject to easy break-ins, then maybe your gold isn’t so safe.

What’s more, many people don’t own physical gold, which means their claims to gold are only as good as the people who will honor their claims. It’s important to realize what makes gold safe, and take advantage of the right precautions in order to make gold a safe investment for yourself.