The Federal Reserve can print more dollars, but no entity can “print” gold. Barrick Gold Corp., one of the largest gold producers in the world, spent $1,065 per ounce to mine gold in 2020. While this makes mining profitable at the current price, this takes a considerably larger effort than increasing the supply of paper or digital dollars.
As for how to invest in gold, financial author Jim Rickards recommends a 10% allocation, and many other advisors agree. This is likely due to poor long-term returns.
Investors should remember that gold does not pay interest. Moreover, it has underperformed stocks over time. Today’s price of $1,740 per ounce amounts to a gain of only 22% over 10 years. Over the same period, the S&P 500 has nearly tripled. Hence, investing in gold has generally not served investors well.
Gold Through History
Nonetheless, the reverence for gold goes back to the beginning of civilization. The ancient Egyptians smelted it as far back as 3600 B.C. and began using it for jewelry in 2600 B.C. Ancient civilizations in Persia, China and many other places revered and treasured this precious metal.
Use as money goes back as far as ancient Rome, but most societies treated it as money indirectly. In the 18th, 19th and much of the 20th century, powerful central banks such as the Bank of England established trust in their respective currencies by guaranteeing convertibility to a specified amount of gold per unit. The Federal Reserve maintained a value of $35 per ounce of gold from the 1930s until 1971.
Removing the gold/dollar peg sent gold as high as $850 per ounce in 1981 as inflation and interest rates reached double-digit levels. However, the Fed moved to counter inflation in the early 1980s. Eventually, gold settled in the $300-$400 per ounce range and stayed there for the remainder of the 20th century.
- Source, Go Banking Rates
