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Thinking about buying Gold?

Updated: May 1

You're not alone, I was recently talking with a wealthy and well informed client and he was wondering the same thing!


I asked a few questions, better understood his thinking, but then helped him reframe his understanding.

Gold serves well as a hedge against inflation and gold is currently trading at its highest level in the past 5 years.  Between 1971 and 2022 spot gold averaged a 7.78% annualized return.  Gold does particularly well when the yield curve is inverted.

The yield curve is essentially a chart comparing similar credit qualities and yields of bonds with differing maturity dates.  A normal yield curve has an upward slope meaning that you can get a higher yield, or interest rate, should you buy a bond that matures many years out.  An inverted yield curve means you get rewarded more with a shorter duration, or maturity date.

The yield curve is currently and has been inverted for a few years now.  Historically, this has indicated an economic recession.  However, should inflation come back down to the Federal Reserve's target of 2%, they will be more likely to cut interest rates.  Cutting interest rates will reduce yields on bonds which will steepen the yield curve, that is to say that the yield curve will normalize.

Inflation is currently running at 3.5%, down from 7% in 2021.  If we strip away the increased cost of insurance and rent, inflation is currently running at 2.7%.

In the end, he didn't buy gold and was grateful for our conversation. I can't speak to your specific situation, but if you have questions about gold or any aspects of your financial life, please give me a call and we'll talk.

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