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Is it a good idea for someone in the middle class to invest in physical gold as a safe guard against economic crisis?

If not, why not? If yes, still why? I'm also curious what percentage of savings should be kept in physical gold. What if you're from the lower middle class, or upper middle class, does that affect anything?

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    What would you do with gold in an economic crisis, especially if you kept it?
    – RonJohn
    Nov 21 '19 at 17:11
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Precious metals might be valuable in extreme situations, as well as a basement filled with dried goods, guns, bullets, and water purification systems. But these preparations probably shouldn't be viewed as high return investments. In fact, they require storage and security, which are not free, and theft or loss are always possible.

Keep in mind that if you purchase a diversified equity index fund, you are already purchasing mining stocks that often track the value of commodities such as gold. For example, Newmont Goldcorp and Freeport-McMoRan are components in the S&P 500.

In my view, most people should focus first on low cost index investing for their long-term retirement needs. If their retirement savings are properly funded, then any excess money can be put toward more speculative ventures and/or disaster preparations.

One other note, safe deposit boxes are not 100% secure. The banks cap their liability. Here's a quote from an article in Advisor Perspectives by Rick Kahler:

An international expert in rare watches stored 92 watches plus rare coins, worth millions, in a safe deposit box at a Wells Fargo bank branch. Wells Fargo had evicted another customer for non-payment and drilled open the wrong safe deposit box. The customer found his “safe” deposit box empty. Wells Fargo executives could only find 85 of his watches.

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Is it a good idea for someone in the middle class to invest in physical gold as a safe guard against economic crisis?

No. This is not investing. This is preparing for the worst. Or actually, trying to prepare for the worst. Investing, by definition, requires a fundamental yield mechanism.

Forest grows. That's yield.

Bonds pay interest. That's yield.

Stocks pay dividend. That's yield.

Real estate pays rent. That's yield.

Art, if placed in a museum, pays ticket fees. That's yield.

But what would the yield be for gold? It yields nothing. Gold just ... is. It doesn't become more, it doesn't increase in quantity, it doesn't pay you anything regularly.

If you want to prepare for an economic crisis, I would recommend to:

  • Prepare an emergency fund of highest-quality bonds in your local currency. This prepares you for anything excepts inflation. Avoid corporate bonds, avoid long bonds, avoid anything suspicious. In this market situation (low interest rates), I would recommend as short bonds as possible. Bank account deposits could be a good option for bonds.

  • Invest into stocks of companies which produce products that will be needed too in an economic crisis. They are often called consumer staples, as opposed to consumer discretionary. For example, automobiles are consumer discretionary, but food and beverages are consumer staples.

If you absolutely must invest into gold and cannot sleep during the night without substantial gold investments, buy shares of a gold mine instead. Unlike physical gold, the gold mine has a yield mechanism. However, when doing this, you must keep in mind diversification. A suitable investment for gold mine would be proportional to the share of gold in world economy, which is to be honest, pretty small.

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    "But what would the yield be for gold? It yields nothing. Gold just ... is. It doesn't become more, it doesn't increase in quantity, it doesn't pay you anything regularly." With that mindset, one would disdain owning Amazon which has no YIELD. And yet it is up more than 1200% in the past 10 years. Oh, and then there's gold rising over 500% the the first decade of this century. Investments come in all sizes and types. Nov 21 '19 at 17:36
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    Amazon has a yield mechanism. They reinvest their cash flow into the same business. Similar to Berkshire Hathaway that pays no dividend, yet is a wonderful investment: it's the world's cheapest actively managed mutual fund!
    – juhist
    Nov 21 '19 at 17:38
  • Oh, and if Amazon is going to succeed, someday they will have to start paying dividend (or equivalently, buying back shares) because else their share of world's economy exceeds 100% which is a mathematical impossibility. So expectation of future dividend is valuable as a yield, just like real dividends are.
    – juhist
    Nov 21 '19 at 17:39
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    If Amazon is going to succeed? Yes, you are right. They haven't succeeded and being up 1200% in 10 years with no dividend is an utter failure. Nov 21 '19 at 18:43
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Gold provides diversification in a portfolio and is often correlated with the stock market during risk-on periods, while it decouples and becomes inversely correlated during periods of stress. This is unique amongst most hedges in the marketplace. We provide the correlation between gold and many major market indices across various assets classes and time horizons to highlight how it behaves with those assets over various time horizons and market conditions.

quoted from web

Gold is inversely correlated with S&P 500, I remember very well being tough in Graduate college finance and investment class.

This question particularly asks for safe guard against economic crisis, then gold should provide that guard.

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