122 – Gold Fever. Is It Worth It?

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Gold Fever. Is It Worth It?

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What comes to mind when you hear the word “gold”? For most of us, it creates a sense of wealth, stability, and purchase power. Gold was once considered a source of wealth and currency in the pre-global/pre-digital world economy (The Roman Empire and Biblical times) when it was readily accepted as a form of payment. However, times have changed, and the amount that gold is really worth – especially compared to the irreparable damage gold mines cause – just doesn’t seem to be worth it.

While gold might have been a good investment in the past, it is actually not great for long-term investments. Why? Bob and Shawn cover seven reasons why gold might not be a wise investment. This includes:

1. It’s no longer used as a currency
2. It has historically low returns
3. It produces nothing nor pays any interest or dividends
4. It is very environmentally hard on God’s creation
5. It is expensive to buy and sell because of high commissions
6. There are high taxes on gains
7. It can’t compare to the long-term returns of a well-diversified portfolio of stocks and bonds

Mentioned In This Episode

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[INTRODUCTION]

Welcome to “Christian Financial Perspectives”, where you’re invited to gain insight, wisdom and knowledge about how Christians integrate their faith, life and finances with a Biblical Worldview. Here’s your host Christian Investment Advisor, Financial Planner, and Coach, Bob Barber.

[EPISODE]

Shawn:
Welcome to another episode of Christian Financial Perspectives. Bob, we’re at episode 122 now. I can’t believe it.

Bob:
We’re getting up there in the numbers. Definitely.

Shawn:
Yeah, for sure. As of now we are recording gold fever. Is it worth it? It’ll be a fun topic, right, Bob?

Bob:
Well, I came up with the outline for this because you are telling me all the time, Shawn, that you get these phone calls about gold constantly, and should I buy gold or not And so I have some opinions on that.

Shawn:
Yes, you do.

Bob:
And I thought, yeah, a great title for today’s podcast would be “Gold Fever. Is it Worth It”? And so we got a lot to talk about in regards to gold. And I think that you’re gonna find this very informative, and should you buy gold or not? Is it a good investment?

Shawn:
It would be very helpful when I get those calls, and instead of having to pretty much answer the same thing repeatedly, I can say, well, I could explain it to you, but Bob and I actually recorded a full length episode on gold. Is it worth it?

Bob:
So I think it’s important first to look at the history of gold because gold has quite a history.

Shawn:
It’s been around for a while.

Bob:
It has, I mean, you go all the way back to the Roman days and biblical days. I did some searching this morning on my Google search and with the Bible Gateway. I love that website and have loved it for years. You can put in the word “gold” and you’re gonna come up with more than 440 scriptures, depending on which version, but it all is around that that many times where gold appears in a scripture. Gold’s been around a long time. It’s mentioned in the Bible many, many times. I was looking, we’ve got some scriptures to share here.

Shawn:
Well, before we share those scriptures, just to kind of summarize the history, gold was once considered a source of wealth and currency in the pre-global/pre-digital world economy, the Roman empire and biblical times, like you already mentioned, and at that time it was readily accepted as a form of payment.

Bob:
That’s right. You had gold coins and silver coins. Yeah. It was the currency of that day.

Shawn:
And for a long time it was. So, 440 times, Bob. Now, are we gonna cover all of those today or did you select?

Bob:
I just picked a few. I picked a few. Why don’t you go over those first two I have there.

Shawn:
Sure. Genesis 13:2, “Abram had become very wealthy in livestock and in silver and gold.”

Bob:
Didn’t mention money, did it? It mentioned silver and gold.

Shawn:
Exodus 25:28, “Make the poles of Acacia wood, overlay them with gold and carry the table with them.”

Bob:
That was for the Ark.

Shawn:
I guess to make it beautiful and add more value to it.

Bob:
And Solomon accepted. I mean, he had more gold than anybody. And Solomon, who was considered one of the wealthiest men in the whole entire Bible, if not the wealthiest man to ever live on the face of the earth.

Shawn:
Right. He was up there.

Bob:
The weight of the gold Solomon received yearly was 666 talents.

Shawn:
That was 1 Kings 10:14.

Bob:
It’s interesting. They got 666.

Shawn:
How much does the talent – that almost seems like it’s not how many pieces, but the weight or the size of it. I mean, do you have any idea?

Bob:
With inflation, I’m not sure, but I’ve heard a talent, in biblical times, could be worth as much in today’s dollars as much as 25,000 to 30,000 to 100,000. 1 King’s 10, “The weight of the gold”… Okay, we already read that one. So 2 Chronicles 1:15, “The king made gold and silver as common in Jerusalem as stones.” You think about that. If it’s as common as rocks back then, it was everywhere. “And Cedar as plentiful as Sycamore Fig trees in the foothills.”

Shawn:
No, I think that one is technically more of a literary device, I guess, if you will. That it wasn’t obviously as common as stone. It was just talking about how wealthy Jerusalem had become.

Bob:
Yes. And how it was used as a currency – media in an exchange.

Shawn:
Psalm 115:3-4, “Our God is in heaven. He does whatever pleases him, but their idols are silver and gold made by human hands.”

Bob:
Isn’t that interesting? You think about the golden calf, King Neb, Nebuh…

Shawn:
Nebuchadnezzar. It also helps if you say it fast.

Bob:
These long words get tongue twisted. He made images of gold, 60 cubits high, 60 cubits wide. here was a great song by a famous singer from way back. You may not have remembered him, but my wife and I loved him. His name was Russ Taff. It was a song,” I’m not gonna worship your idols,” you know? 60 feet. I mean, he talked about that. How wide and how high it was.

Shawn:
Gold. There’s an infatuation with gold.

Bob:
There really is.

Shawn:
It was considered wealth in the Bible. Like you already mentioned, there were items built of gold to worship. Then in modern times, right here in America. We had the gold rush. Which is a little bit kind of where the title comes from for today. We had entire towns built overnight looking for it. Gold created unbelievable greed to get it, destroying whatever and whoever was in its path. More lives were destroyed by it than those very few that benefited from it.

Bob:
Yes, absolutely. It was. And Rachael and I, we’re going to Colorado next week. Of course, by the time this comes out, we’re already back, but we’ve visited all the different gold mines in Colorado. They’re kind of fascinating and fun to see, and you can see all the gold towns, but they’re not there anymore. None of ’em are there.

Shawn:
There’s maybe a few of them that actually turned into towns or cities today, but most of ’em are deserted.

Bob:
And the destruction and the path that they’ve left is sad because it just has destroyed God’s creation, and it’s still destroyed. All these years later, you can see the devastation it did to the landscape and I always say, if you love the Creator, take care of the creation. Gold definitely doesn’t do it, and it still doesn’t do it today. So, another thing. You saw the last point I wanted to make today about the gold before we really get into is how’s it used today and is it a good investment? The stuff is so plentiful in heaven, it’s used the same as asphalt is here, right? I mean, the streets are made of gold in heaven is what it says in the Bible.

Shawn:
Shows how much God really values it.

Bob:
And the danger of it because of the greed it can create.

Shawn:
So today, it is no longer used as a currency.

Bob:
It’s not, is it?

Shawn:
Nope.

Bob:
Today we live in that global economy and it’s not based on gold anymore. Now, is that a good thing or a bad thing? You’ll have different arguments behind that.

Shawn:
There’s pros and cons, for sure, but it was kind of an inevitable thing, I would think, because with the way our population has grown and just you have your modern fiscal policy. Again, pros and cons,

Bob:
The weight of it, carrying it in your pocket.

Shawn:
But it was kind of an inevitable thing that at some point we would grow past even needing to base the currency in gold. Love it or hate it, but that’s where we are.

Bob:
And to get it to convert gold to a currency that you can use, there’s very high transaction cost to do that.

Shawn:
That is very true. If you’re actually wanting to go back to gold, like trade, buy physical gold.

Bob:
And the gold standard – Britain stopped using it back in 1931, the US followed that just a few years later in 1933. And we abandoned the complete system of using it in 1973. So, it’s been many years that gold has not been used as a currency. And the only way to use it as a currency is you have to convert it to a currency.

Shawn:
Which carry those high transaction costs, whether you’re buying it or selling it.

Bob:
That’s right. So, let’s talk about the returns of gold. I think people will be surprised to find that.

Shawn:
So the returns aren’t high?

Bob:
That’s nearly a joke.

Shawn:
The point is that it has historically low returns.

Bob:
It does.

Shawn:
You can look at it yourself. There’s a a hundred year chart for historical gold prices from macrotrends.net. But the long term returns for gold are minuscule at best, with less than a 1% annual average return for those that have held it over the last 10 to 20 years. In 1980, gold was selling around $2,500 an ounce. 10 years ago, it was around $1,700.

Bob:
So stop right there. No, wait a second. Did you just read that? 1980…

Shawn:
$2,500 an ounce.

Bob:
And 10 years ago?

Shawn:
$1,700 an ounce.

Bob:
What does that sound like?

Shawn:
Deflation.

Bob:
It sure does.

Shawn:
As far as the value of the gold itself. As of the time of making this episode, gold is around $1775 an ounce. Still not back up to the $2,500 ounce like it was in 1980.

Bob:
And if you go back 10 years and you look at the difference between what it was 10 years ago and even today, the total return, this is not an annual return, okay. This is the total return. It’s 4.5%.

Shawn:
Wow. So in other words, 0.45% annually, which is terrible.

Bob:
If you’d have bought it 10 years ago. So the return of gold has not been good at all over the long run. Maybe the short run, but not the long run. Also, go ahead.

Shawn:
Gold produces nothing, nor pays any interest or dividends.

Bob:
Can I say that again? Gold produces nothing! It doesn’t pay any dividends. It doesn’t pay any interest.

Shawn:
And unlike stocks and bonds, a purchase of gold is not an investment in any company’s income or growth. Gold, as we said, doesn’t pay any dividends or interest.

Bob:
Completely. Just, I don’t understand that, but, I mean, I do understand it. It’s just metal is all it is. It’s very environmentally hard on God’s creation. Gold is, without that, one of the world’s dirtiest industries. As I researched this, I was amazed at what I found. Gold miners use cyanide and generate massive amounts of waste and leave long lasting scars on landscapes and communities. And it’s been linked in other countries to social injustice and human rights violations.

Shawn:
Man, just go to Colorado or anywhere that there were old gold mining areas and you can see what we mean by all these scars that they leave on the landscape. There’s a website, earthworks.org, they have information on dirty gold, and then there’s also theworldcounts.com. They have information on environmental effects of gold mining.

Bob:
Yeah. It really gets into detail about all the areas and what they use. And it was amazing. Here’s my gold wedding ring and just to make that, how much waste was produced to make that? Waste that now has toxins in the soil. And again, this is God’s creation.

Shawn:
And it’s sad too, Bob, because it’s not so much that the practices have changed. It’s just gotten larger and for the most part, moved away from say the United States to other less developed countries, which makes it even worse because it takes advantage of the local governments and the people even more.

Bob:
Next, gold is expensive to buy and sell because of high commissions. In my research, I found the lowest, lowest commission was around 1% to 2% with an average around 5% to 6%. There’s the professional…say that word.

Shawn:
I’m not even sure how to say this, but I’ll try it. Professional numismatic.

Bob:
Numismatic guide. And the average commission for one ounce American Eagle or Maple Leaf Coin is about 5% to 6%. Now, remember we went back the last 10 years. What did we see the rate, the total return?

Shawn:
4.5% for 10 years or little less than 0.5% a year.

Bob:
But think about the 4.5%. If the average cost to buy and sell was 5-6%, if you own it for 10 years…

Shawn:
You still haven’t even made your money back.

Bob:
You haven’t made any because of buying and selling it. So, it’s the high expense of it. What’s this next one, Shawn?

Shawn:
Higher taxes on gains.

Bob:
How about that one?

Shawn:
I actually didn’t know this one.

Bob:
I did. I’ve heard this many times, but go ahead.

Shawn:
The US Internal Revenue Service, IRS, categorizes gold and other precious metals as collectibles, which are taxed at a 28% long term capital gains rate. Wow. Gains on most other assets, for comparison, held for more than one year are subject to 15 to 20% long term capital gain tax rates. So not only is the return abysmally low at 4.5%, in total, over a 10 year period. And there’s a 5% to 6% commission each way, buying it and selling it. On top of that, you’re paying 28% long term capital gains rates.

Bob:
If you have any gains. Of course, the odds you’re gonna have gains.

Shawn:
If you have any gains. That’s a good point.

Bob:
The odds of having any gains is not very high. So the last point I want to make today is it can’t compare to the long term return, long term returns. Let me start over on that. It cannot compare to the long term returns of a well diversified portfolio of stocks and bonds. The historical rate of return is nowhere near that. And I’m talking about a well diversified, not in one stock, not in one bond, but a well diversified portfolio of publicly traded stocks, large and small mid-size companies across the globe. And the ease of buying stocks and bonds today is so easy and the transaction cost is so low.

Shawn:
Yes. Practically zero cost.

Bob:
In many cases, it is. And you’ve got your publicly traded stocks. You’ve got bonds, you’ve got ETFs, you’ve got mutual funds, and they all represent the production. I like this. They represent the production of goods and services.

Shawn:
That we actually use, as human beings.

Bob:
Gold doesn’t produce anything.

Shawn:
Well, and these all pay, or many of them, pay dividends or interest, and because of the low transaction cost and type of marketplace that they’re in, they can also be quickly and efficiently converted to cash with little to no cost. Gold doesn’t do any of these things.

Bob:
So here’s a conclusion. Okay. So, before we go through all this, I’m gonna go over all seven of these real quick again. All right. 1. Gold is no longer used as a currency. 2. It has historically low returns. 3. It produces nothing. It doesn’t pay any interest or dividends. 4. It’s environmentally hard on God’s creation. You go on 5, 6, and 7.

Shawn:
5. Expensive to buy and sell because of high commissions. 6. There are high taxes on gains, if you have gains, at a 28% rate compared to 15% to 20% rate for other assets that you’ve held for a year or longer. And number 7. All things considered, it just cannot compare to the long term returns of a well diversified portfolio of stocks and bonds.

Bob:
Therefore, as a fiduciary based financial advisor. We’re fiduciary based, in what’s the best interest of the client. We believe gold should be avoided as an investment. I know that’s a big deal to say that.

Shawn:
I know people don’t like to hear that, but facts are facts.

Bob:
And there’s a couple scriptures we’ll end on. Deuteronomy 7:25, “The images of their gods you are to burn in the fire. Do not covet the silver and gold on them and do not take it for yourselves, or you’ll be ensnared by it, for it is detestable to the Lord your God.” You gotta be careful because of the greed associated with it. Of course, there’s greed associated with stocks and bonds.

Shawn:
Sure. Deuteronomy 29:17, “You saw among them their detestable images and idols of wood and stone of silver and gold.”

Bob:
So it’s been used to for idol worship.

Shawn:
That too.

Bob:
So as always, we’re here for your comments or questions. I have a feeling we might get some questions about this.

Shawn:
As long as the question is not, “Should I buy gold?” Cause I feel like we’ve covered that one pretty good at this place.

Bob:
I think we have, but if you have questions about financial advice, planning, and investment management, feel free to give us a call. We can be reached during business hours by phone or text at (830) 609-6986, or visit us on the web www.christianfinancialadvisors.com.

Shawn:
Thank you for joining us and have a blessed day.

[CONCLUSION]

That’s all for now.

We invite you to listen to all of our past episodes covering many financial topics from a Christian Perspective. To make sure you don’t miss any of Bob’s upcoming episodes you can subscribe to Christian Financial Perspectives on iTunes, Google Play Music, Spotify, or Stitcher. To learn more about integrating your faith with your finances, visit ciswealth.com or call 830-609-6986.

[DISCLOSURES]

Investment advisory services offered through Christian Investment Advisors Inc dba Christian Financial Advisors, a registered investment advisor registered with the SEC. Registration as an investment advisor does not imply a certain level of skill or training. Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the hosts, Bob Barber and Shawn Peters, and their guests. Bob and Shawn do not provide tax advice and encourage you to seek guidance from a tax professional. While Christian Financial Advisors believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability.