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Gold & Silver: What Are They Good For?

Many conservative talk shows include advertisements regarding gold and silver. They also at times focus on the 'great' gold standard in history, and the future risk of the dollar collapsing.


When you hear something repeatedly - it makes you wonder and it can often stick. Maybe you think gold/silver are safer if the something terrible happens to the economy. Whether it is fear, greed, or security that is the motivation: gold and silver are often in the picture.


Some of the following beliefs (whether true or not) are said:


  • "Gold/Silver is going to go up when the economy crashes, and therefore my investment in Gold/Silver will do great!"


  • "Silver/Gold is tangible and it has passed the test of time."


  • "Gold is something I can easily barter in a desperate end of the world type of scenario."


  • "Gold is something you can store and will likely not lose its value over time."


Are gold and silver appropriate investments?


What can you expect of gold and silver investments?


Let's take a look at gold and silver, their history, their taxation, and their viability as investments.


Gold and Silver - they are rare commodities. They have some usefulness to them through industrial applications.


First off - Gold produces nothing. It is either stored or it is used in materials or used as jewelry. Therefore, it will not produce dividends like stocks. It will not produce interest like bonds. You either sell it for it's value or for its use. It does not produce a profit like a company can. When companies earn a profit they share that profit through the form of dividends.


Certainly, gold is malleable and will not corrupt, but it will sit there in your safe.


Does gold hedge against inflation?


Yes and No: Gold and silver have kept up with inflation if you go far

back to its heyday in the 1970s. However, from the early 1980s until the

Great Recession in 2008 gold did not even keep up with inflation. It had

a good run of 3-4 years and then was flat for nearly a decade until 2020.


Inflation (based on Consumer Producer Index): 3.87% from 1970 to ~2022.


The data below reflects the following from ~1970 to ~2023:


Inflation Adjusted Gold Price


Non-Inflation Adjusted Gold Price



Inflation Adjusted S&P 500


Non Inflation Adjusted S&P 500


And then there's taxes:


Gold is a collectible and therefore the physical holding of it can be taxed as a collectible. Gold ETFs and other types of Gold funds can/may be taxed differently. If you purchase gold physically and then sell it for a gain, then you will be subject to capital gain taxes.


Specifically, if it's sold within a year of holding it then it will be taxed at your ordinary income rate (this is true for almost all short-term capital gains). See the article: The Basics of Taxes for additional information.


However, if you sell it after holding the physical gold for a year, then it could be taxed at a maximum rate of up to 28% (instead of the maximum 20% for most long-term capital gains). That is potentially an increased rate of 8% just for being a collectible/gold.


Gold creates additional complexity with taxes, specifically if it's a long-term investment and precisely because the IRS, in their own words, consider it a collectible (not an investment) which is why it is taxed differently.


"You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all - not some - all of the farmland in the United States. Plus, you could buy ten Exxon Mobils, plus have $1 trillion in walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?" - Warren Buffett


To summarize - gold and silver are poor investments, especially in comparison to investing in the largest companies in the United States. The long-term gold/silver performance has varied, tax-wise they create more complexity and potentially more tax. In my opinion, there is little reason if any to own them unless you are trying to time the gold/silver market and thus take unnecessary risks.


Gold may provide diversification, and appears to do so in times of great uncertainty (ex. leaving the gold standard, the great recession, and Covid-19). Yet, I would argue gold has little value other than the perspective of it's exchange rate to another currency. Bonds and stocks reflect the value of a company with buildings, machinery, a work force, etc. Gold/silver reflect an exchange rate into jewelry, dollars, or box of metal.


I would argue that in an 'end of the world' scenario I would rather not own gold and silver since guns and ammo will dominate, and not necessarily those who own gold/silver. I would bet that food, cigarettes, and alcohol would be more valuable in that 'scenario' than gold.


"(Gold) gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head." - Warren Buffett


What do you think? Do you own gold/silver? Why or why not? Let me know through text or email below!


Blake Jones, CFP®, EA

Mobile: (385) 398.4015

Blake@PomegranateFinancial.com


Pomegranate Financial LLC is an Investment Adviser registered with the State of Utah. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy or the completeness of any description of securities, markets, or developments mentioned. From time to time, we may have a position in the securities mentioned and may execute transactions that may not be consistent with this communication's conclusions. Please contact us at (385) 398-4015 if there is any change in your financial situation, needs, goals, or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions. Additionally, we recommend you compare any account reports from PF with the account statements from your Custodian. Please notify us if you do not receive statements from your Custodian on at least a quarterly basis. Our current disclosure brochure, Form ADV Part 2, is available for your review upon request, and on our website, www.pomegranatefinancial.com. This disclosure brochure, or a summary of material changes made, is also provided to our clients on an annual basis.

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