Should You Invest in Gold for Retirement?

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Many investors believe that gold is a safe long-term investment that can be used to hedge against risk. But should you include this precious metal in your retirement portfolio? Gold can be a highly volatile asset, with an unpredictable price that rarely correlates with stable growth. And this makes it a poor choice for the kind of dependable, long-term investing that retirement demands. Here’s what you need to know.

The history of gold as an asset

Gold is a commodity, which is defined as a raw material like an agricultural product, a mineral or ore. Investors buy commodities largely for two reasons. In some cases, they want the commodity for practical purposes. For example, a roaster might buy coffee futures because they want to use those coffee beans and are trying to set their prices in advance of taking physical possession of the beans. In other cases, investors may want the commodity for financial purposes. For example, a fund might buy coffee futures because they think the price of beans will go up and they intend to sell this contract when it does.

For financial investors, the value of a commodity is based on its market price. This market price, in turn, is determined by a wide variety of factors. If you invest in agricultural commodities, for example, the weather and growing season can determine current prices. A bumper crop will drive prices down, while huge storms can wipe out crops and drive scarcity, pushing prices up. Prices will depend on the use of a commodity, with demand pushing prices up as customers want more of a given product, as well as technology, politics, production bottlenecks and any other number of issues.