hi i'm jimmy in this video we're going to look at gold
we're trying to determine if gold is a good addition to our investment
portfolio and then we're going to look at some of
the pros and cons of owning gold and then we're going to take a peek at
some of the big news in gold and that's the fact that warren
buffett's berkshire hathaway has recently
gotten involved in gold so let's jump in and start with why we might buy gold
so gold is known as being a good diversifier when we look
at this chart of the S&P 500 compared to gold going back the past five years
well we can see signs of this being true now this is a chart for both
gold's performance and the s&p 500 performance
going back five years but we can see it starts at zero
and over this time period we can see that they've averaged
about the same return the total return at the end of this time period
is about the same but they got there in very different ways
so we can assume that there is some positive correlation between
the two even though how they got there is different
and this is where gold can be a good help
it's where it can be a good diversifier and it can help our portfolio
when we look at this spike here well we can see that the s&p 500 went up and
gold was falling and then as the s&p 500 turned sharply
lower at the end of 2018 well gold did just fine continuing to
move higher now obviously this didn't work for every
time period there are certainly time periods here
where both gold and the s&p went in the same direction and if we wanted to see
diversification from a numbers perspective
while i put together this correlation table going back the same time period
for this we have gold the s&p 500 nasdaq the dividend aristocrats etf and
the dow jones industrial average now just so we're all on the same page
correlation shows us how two stocks or commodities or etfs
how closely they move together how at the same time
do they move in the same direction correlation runs
from a negative one all the way to a positive one
and zero falls right in the middle so a positive one would imply that those two
stocks or two etfs or whatever they are move exactly the same when one moves up
they both move up when we look at the negative one that
would imply that they move exactly the opposite directions
in zero uh when you get closer to zero well that really implies that they're
not that correlated they you can't really use one to predict
the other so when we look at something like NOBL that's a dividend aristocrats
etf and then we would compare that to the
S&P 500 well we can see that these two are highly correlated
over this time period this 0.955 would fall about here on our correlation
scale but gold on the other hand we can see that gold has a much lower
correlation coming in at 0.18 that would fall about
here that implies that gold and the s&p 500
don't necessarily move together gold can go up and the s&p 500 can go down and we
saw examples of that and then we may notice that gold's
correlation to nearly all of the other major indices
are all fairly low or close to zero now they are positive so that implies that
there is somewhat of a positive correlation but
it's a small one so overall we can say that gold has been
at least during this time period an excellent diversifier to a stock
portfolio now this brings us to the next benefit
of gold and that is that gold is quite a good diversifier
in an inflationary environment when we have high inflation
gold should do well and let's face it the federal reserve is doing a lot
to push us into an inflationary environment
this is the inflation chart going back to 2000 this is the cpi
year-over-year changes cpi is short for consumer price index
and yes we can debate as to whether or not this is a fair representation
of inflation i've got a pile of student loans
and a crazy high monthly health insurance bill
that says this is not a fair representation but
either way this is one of the most popular data points for
economists to use so we can stick with it for now so as far as inflation goes
when we have high unemployment it's tough to have iron
high inflation since consumer spending represents a big piece of the inflation
pie so with 10 unemployment it's tough to
drive up the prices on average goods and services but let's
imagine that we had a five-year outlook on the economy it's very possible that
we say inflation could become much higher than
it is and if that's the case well then it's
possible that gold goes up since inflation is one of the key
drivers behind the price of gold so this could be another positive reason
to add gold to our portfolio but now for the negative now one of the
in my opinion one of the biggest negative drawbacks to investing is gold
is when do we buy it what is gold really worth
we know that there are a ton of economic influences
on the price of gold but personally i have trouble saying that
gold is really worth x maybe we can say that gold should be higher
than it is now or lower than this that now
or the economic impacts that are coming down the road something like inflation
are going to favor the price of gold going higher but how do we calculate the
fair value of gold i don't think there is a good way to
come up with a fair value so for me i think that makes investing in gold
tricky personally since i prefer to be a
long-term value investor and you know who agrees with me or at
least used to agree with me this guy if you if you buy an ounce of
gold today and you hold it 100 years you can go to it every day and you can
you can coo to it and you can caress it and and you can fondle it and and and
100 years from now you'll have one ounce of gold and it won't have done anything
for you in between now that video was from a few years ago
but the point remains the same we are banking when we buy gold today we
are banking on our ability or not our ability but
the market's ability to allow for us to sell gold at a higher price to somebody
else later why well that's tough to tell now i know
what many of us are thinking didn't buffett just recently get
involved in gold in fact we might have seen headlines like these
and first i think that we should clarify that despite
these somewhat misleading headlines buffett
actually bought barrick gold ticker symbol
g-o-l-d not gold the commodity and i think that's a very important
distinction it's very possible that gold stays let's say right in this
area and barrick gold let's say they increase
their production and therefore they make a larger profit
and in theory the stock could move higher despite the fact
that if we invested in gold the commodity gold might not go up and
barrack gold could go up so i just wanted to point out the difference
between buying a gold the commodity and buying a
gold mining company but although it's not exactly the same
it is a very important point that they do move very close to each other
the higher gold goes the more profit a gold mining company will make and that
brings us to the second point and that is that i think it's very
possible that warren buffett did not buy barrett gold himself
buffett has two portfolio managers that work for berkshire hathaway
and i think each of them manage somewhere in the 19 to 20 billion
range right now so it's very possible that they took a 500 million
550 million dollar stake and put it into barrick gold
and if we're wondering no they don't have to clear their investments with
buffett himself he's come out a few times and said that
they can buy whatever they want whenever they want they can
buy as many or as few stocks as they choose so personally
i think that this is likely what happened and i think it's very
possible that they're investing in gold for the reasons we discussed the
economic environment right now is favoring the fact that gold could keep
moving higher or at least stay the same and if that's the case owning a gold
mining stock could make a lot of sense so now we ask the question does it make
sense to add gold the commodity to our portfolio and if so how should we
buy it well personally i think it could make
some sense here like i said between what the fed is doing in the
overall economic environment it's very possible that gold
at least stays high possibly continues to move higher
so for many investors i think gold could be a very good addition to their overall
portfolio now personally i'm not buying it and
that's because i have limited funds invested
and i only own a couple stocks i own uh disney and
intel right now and i'm continuing to add to that portfolio to try to
diversify it i wouldn't add gold to that portfolio
until i thought it was frankly complete and i was looking to
add more diversification benefits to it right now i need to spread out the
investments among different sectors and other
growth opportunities but if i was going to buy it
well i think it makes the most sense to buy it in the form of an etf
there are many gold etfs that track the price of gold
we buy the etf they take that money they actually go out and buy gold stored in a
vault and the price of the etf should track
the gold the prices spot the spot price of gold
very closely and at least the big gold etfs
tend to be much more liquid than buying physical gold
now gld is the largest gold etf out there but i'm actually a bigger fan of
bar bar b-a-r is the ticker symbol that's the granite shares gold etf
and it does exactly what gld does except bar
charges a much smaller fee so for me i think that's worth it considering that
we're getting the exact same thing now i do think i should
point out that i actually have a relationship
with granite shares they don't pay me or anything but
my father owns an investment company that created an index
that granite shares uses for their hips etf hips is for high income
pass-through securities and basically what it does is it's a
high dividend etf and my father when my father was
reconstructing that index he actually called me brought me in
said hey will you rebuild this for me i never done an etf so i was very excited
to give it a go and he was willing to pay me to do it so
i went over and i did that with him and that was a cool experience
and i actually did a video where i went through how i went about building the
index and how i went about building the rules for the index which the etf would
track and if you're curious perhaps that could
be a good next video for you to watch i got a link right here i got a link in
the description below and thank you so much for sticking with me all the way to
the end of the video i really appreciate it thanks and i'll
see in the next video