The case for and against owning gold today

In my penultimate column on gold, started by the many questions asked at the bar, I’ll cover the case for holding it at all.

Some investments make you feel clever. Gold is not one of them. It just sits there. It doesn’t pay you anything. It doesn’t innovate. It doesn’t charm guests at dinner parties.

Today, with gold prices brushing record highs, many are asking the question again: should I own some? Or is it just an expensive ornament from a world which no longer exists?

Let’s look at both sides with a clear head and a long memory.

The case for and against owning gold today

THE CASE FOR GOLD:

Start with why central banks, some of the least excitable institutions on earth, continue to hold it. Not because gold promises riches, but because it offers something rarer - independence.

Gold doesn’t rely on anyone’s word. It doesn’t default. It doesn’t get cancelled. You can’t print more of it, and you can’t sanction it. This makes it deeply unfashionable at the best of times, and deeply valuable at the worst.

In practical terms, gold tends to move differently from shares and bonds (negative correlation) especially when they both stumble together. That makes it a portfolio stabiliser, never the life of the party, but often the one which drives you home.

There’s also a global pattern to consider. Some of the world’s biggest buyers today aren’t traders or hedge funds but countries like China, India and Poland.

They’re not buying because it looks clever. They’re buying because they don’t want to be caught short if the rules suddenly change.

And lastly, the supply side. The world isn’t making much new gold. It takes years to find and even longer to dig. With demand steady and supply tight, the long-term price pressure seems more likely to build than to buckle.

Crucially, Central Banks hold gold because it’s nobody else’s liability, immune to politics and sanctions.

THE CASE AGAINST GOLD:

Gold doesn’t earn anything. No interest. No dividends. It’s not a field which grows corn year after year. Just silence. You hold it and wait. And often, you wait a very, very long time.

Most of the gains in gold over the past 50 years came in short, sharp bursts. The rest of the time it plodded or paused. There are whole decades when it has lagged behind inflation, let alone shares or property. I

f you get your timing wrong, you can spend years underwater, watching others sail by with their feet trailing in the water.

Emotion. Gold tends to look most appealing when fear is highest, which is often the worst moment to buy it. It is not immune to bubbles. Look back to the early 80s, or the post-crisis peaks. People piled in, full of conviction and stayed too long.

Warren Buffett’s old gripe holds up. If you put all the gold in the world in one place, it wouldn’t grow a business. It wouldn’t hire staff. It wouldn’t invent anything. It would just sit there, looking pretty, and doing nothing useful unless something goes badly wrong.

So, should you own it? Maybe. But not too much, and not too late.

If you think the world is getting riskier, or if you believe that over the long run, something solid and timeless should sit in the corner of your portfolio, then yes, some gold can make sense. Not to chase returns, but to lower risk.

If you already sleep well at night, and you are comfortable with a portfolio of productive assets, then gold may simply feel like a drag. And if you’re buying because your friend just did, stop and think.

The sweet spot, backed up by decades of academic research, is usually a small slice of gold, held consistently and reviewed rarely. It is best added when the world is quiet, not when the headlines shout.

Think of gold like a fire extinguisher under the sink. You don’t admire it. You don’t talk about it much. But you’re glad it’s there when something catches light.

Gold is not a growth engine. It is not a trend. It is not a gamble. It is a tool. A shield. A small insurance policy for the things you hope never happen.

Used sparingly and wisely, it earns its keep. Used emotionally or greedily, it rarely ends well.

The test is not whether gold will go up tomorrow. No-one knows that. It may be either and you can’t crystal ball that. That’s not your role. If you were crystal balling, pick the lottery numbers.

• Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning (www.wwfp.net), which is authorised and regulated by the Financial Conduct Authority. At the end of this series I will write a guide to investing into gold. If you’d like a complimentary copy,call 028 6863 2692 or email info@wwfp.net and we’ll send you a copy when it’s published.