Is Gold A Good Safe Haven?

A few clients have called recently to ask us whether gold is a good place to invest. They are understandably looking for a safe haven where they can hide from coronavirus-induced market turmoil.

Unfortunately, despite its glittering reputation, gold has a somewhat tarnished long-term record that makes it far from an ideal safe haven. Over some time periods, it has performed well compared to other investments. In other periods, it has been a severe disappointment.

Since 1980, and over longer-term market cycles, it has failed to keep up with inflation. According to Morningstar data, gold has lagged stocks over the 5- and 10-year periods, often dramatically. Its price trajectory is extremely volatile, with the metal still trading below its 1980 and 2011 highs, meaning some investors are underwater after forty years.

So far this year, it’s bucked the downward trend, staying in positive territory – along with Treasury bonds – for the first quarter.

Buying gold today

Unlike in the old days when goldbugs needed to buy bars, coins or other physical gold assets, it’s much easier and more convenient now to invest in the yellow metal.

Most people looking to own gold invest via an Exchange Traded Fund (ETF), which can be purchased without any commission at Schwab and other brokerages. These funds invest in gold by buying gold contracts as well as physical gold in the form of bars that they pay to have stored securely in vaults strategically located throughout the world.

For most people, it beats hiding gold bars under your bed or in your garage!

But gold doesn’t always shine

There are some negatives with investing in gold. Prices are extremely volatile, with vertiginous highs often followed by plunging lows.

The biggest drawback? Gold has no earnings and pays no income, so unless it goes up in value and you sell, it doesn’t do you much good. You don’t make any money until you sell, and only then, when you sell at a profit. That’s a deal-breaker for many investors, who rely on income flows to pay their monthly expenses.

Commodities in general (including energy) have been poor performers over the last several years. As investments, they come in last place for performance since 2004. Not surprisingly, cash – hobbled by ultralow interest rates – comes in second-to-last.

If you’re interested in buying gold as portfolio insurance against a catastrophic meltdown, you might consider buying Treasury bonds instead. At least they pay some income, and still enjoy the full backing of the U.S. Government. Concerned about future inflation? Take a look at inflation-protected Treasuries.

For longer-term investors, we still believe there is no substitute for dividend-paying growth investments, like stocks. That is an asset that has successfully stood up to inflation over time, and meets our clients’ demands for a growing income stream in retirement. For investors who want to tone down the risk, balanced or asset allocation funds are a good choice (they throw some bonds into the mix) as are hedged-equity funds that can limit your potential downside.

Financial Tip: If you can’t resist the allure of gold, just remember that a small amount goes a long way. If you do decide to include the glittery metal in your portfolio, keep it to 5% or less of your total portfolio value.

Should investors own gold as a hedge against inflation? Read more insights from Donald Calcagni, CFP®, MST, Chief Investment Officer of Mercer Advisors.


Mercer Global Advisors Inc. is registered with the Securities and Exchange Commission and delivers all investment-related services. Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services.

About Mari Adam

Mari Adam, Certified Financial Planner™ has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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