Seniors and the Shifting Gold Market

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For most seniors who would classify themselves as part of the “Baby Boomer” generation, certain ideas about investment have probably taken hold over the years. And among those, it may have become evident that gold is an option for diversifying a portfolio and planning for the future. Indeed, if this rings true for you, you may have spent years hanging onto gold and enjoying gradual increases in its prices along with the security of knowing that some of your finances are tied up in a resource that has the reputation of being a hedge against currency changes.

The basic idea is that while currency can lose value during times of economic turmoil, gold’s price is uniform across the world, and therefore less likely to drop suddenly or unpredictably. Thus, when a currency (as well as stocks and bonds) appears poised to drop in value due to an economic downturn, some investors buy up gold to protect the worth of their assets for the duration of the downturn or recession. Meanwhile, up until a few years ago, some believed that this sort of pattern repeated often enough over time meant that gold prices would continually rise, or at least remain high.

In a study by several financial experts looking into the validity of these ideas and strategies, and the results were fairly mixed. Most notably, the study noted “gold is found to consistently have the highest annualized risk levels, followed closely by equities and then bonds.” This implies that the gold market is in fact far riskier than many believe it to be. However, the same study also acknowledged “gold consistently acts as a safe haven for equities and debt during financial crises across all horizons.” This reinforces the idea that many seniors have long accepted that gold is an important aspect of a strategically diversified investment portfolio.

The study that produced these findings relied on data from the time period spanning between 1980 and 2013, which is certainly a valuable sample size. It’s also one that’s particularly relevant to those who have invested in gold over the long-term. However, for seniors who are still managing their investment portfolios, or who are considering investing in gold now, it’s also important to acknowledge that the study essentially ignores the last two years’ worth of gold trading that, incidentally, has been a period of nearly unprecedented volatility.

Looking at the price of gold over the past few years, this volatility is made crystal clear. The price at the outset of 2013 was not far from its all-time peak, sitting at roughly $1,660/ounce. And yet a nearly continuous decline since then has the price currently (as of June 10, 2015) sitting at about $1,187/ounce. Now, significant price fluctuation can occur with any stock or resource, particularly over the course of a two- or three-year period. However, when you consider the underlying reasons for most gold investments for the past 10 or 20 years—financial hedging and establishment of a “safe haven”—the significant shift in gold price tendencies is particularly significant.

None of this is to say that seniors should or should not invest in gold, or that they should or should not cut their losses with existing gold investments. As with any stock or resource, the market is unpredictable to some degree, and no decision should be made without careful study and attention. However, given the fact that many seniors today spent most of their adult years seeing gold pay off as a fairly valuable or relatively safe investment, it’s important that those seniors still managing their own finances recognize the dramatic shifts in the market. Bloomberg recently argued that a strong dollar and potential interest rate hikes by the Fed could even further weaken gold’s position in the months ahead. This further supports the idea that even if you don’t abandon the gold market, it’s time to reassess strategies attached to it.

This is guest post by Paul Bryant, a freelance writer who enjoys researching and pitching topics related to finance, investing, and business.

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