Does Gold Ever Depreciate in Value?

The most common thing for a buyer of gold to think is, “Am I making the right decision?”  Gold is one of the most expensive metals that you can buy and so a gold purchase represents a large financial transaction.

It is only natural to wonder if you are making the right choice.  You always have the option to wait.  But how do you know if you wait it the price of the gold will go up or if it will decrease in dollars?

Well, gold like everything else goes up and down in value versus the United States dollar.  The one thing that never has happened is that the value of gold has never gone to zero.  It has never happened.  That is not true for all fiat currencies.

Actually, the opposite is true, all fiat currencies have eventually arrived at their intrinsic value, which is zero.

One more note to think about, and this applies to gold or any other investment, if you are worried about the price of it going down, if this worry is keeping you up at night, then you have too much exposure to the investment.  To fix this simply reduce the amount of money you have invested in the asset, and that will decrease your anxiety tremendously.

Here is a good article to learn more about position sizing:

Why Should You Invest in Gold?

If you are new to investing in gold, you may be wondering why people think of gold as an investment.  After all, products like jewelry, and precious stones actually depreciate over time because they pick up imperfections and blemishes as they age.

Gold does not have this problem due to the soft nature of the metal.  You can always melt gold down into something else and it will still be a pure gold.  In this sense, gold is an infinitely recyclable material.  Gold has been of value to mankind for as long as we have records, so that is at a minimum 5,000 years.  This is a long track record for something to be a store of value.

Gold is also one of the rare things on earth that is recognized to all humans.  You can take a bar of pure gold to any culture, throughout any time period in history, and the people there will recognize a gold bar as having a significant amount of value.

In regards to financial planning, investing, and portfolio management, gold has a unique place.  It is seen mostly as a hedge against current financial instruments.  Most investment advisors will tell you that gold is a non-correlated asset or investment.  This means that if the stock market or the real estate market crashes, it should not drag down the value of your gold investment.

This idea of gold being a non-correlated financial asset is only partly true.  In reality, sometime gold moves in step with all the other markets, sometimes it does not.  If you speak with most gold investing firms they will tell you that gold only goes up in value.  That is clearly not the case.  Although there are some firms that will be honest with you and tell you the positives and negatives of investing in gold, and it is rare to find this type of honesty.  If you would like to learn more about an honest and ethical gold investing company, you should read this Augusta Precious Metals review.

So What Exactly is Depreciation?

Depreciation is when something goes down in value vs. the U.S. Dollar.  It is a price movement.  Everything goes up and down because everything is cyclical.  What most investors don’t realize is that the value of a U.S. Dollar is also cyclical and goes up and down, but we will leave that discussion for another day.

Basically depreciation of an asset is the opposite of price appreciation.  Over time most things go down in value.  Things that are poster boys for depreciation are cars, and especially luxury cars, they drop in value like rocks.  Also electronic devices like phones and laptop computers tend to depreciate quickly as well.  Think about it.  How many people want a two year old Apple iPhone?  Not many, so the price of it is way down compared to when it was first sold on the market two years earlier.

You may be wondering, “Well how does depreciation affect the price of gold?”

Well in the short term gold can definitely decrease in price.  It’s usually a good idea NOT to buy gold at the peak of a gold bull market.  But the thing about gold is you need to zoom out when looking at it’s price.  Because gold has been around for thousands of years, and over long periods of time like decades, centuries, and millennia, the value of gold is actually fairly stable.  And your gold bar, if you store it properly will be just as good and just as valuable a thousand years from now.  You definitely cannot say that about any electronic device you buy like a phone or a T.V.

Why is depreciation not a problem for gold?

Well first you need to realize that gold is about saving value instead of making money like a tech stock.  Depreciation does not affect gold like normal asset classes due to the Lindy Effect.  The Lindy Effect basically states that the longer something has existed, the longer it is likely to exist in the future.

Gold has been around as a store of value for humanity for at least 5,000 years.  It is not a stretch; it actually is a very high probability that gold will remain a store of value to humanity for 1,000 years into the future.

There is something powerful, awe inspiring even, about holding a bar of pure gold in your hand.  It will always incite some level of desire in man to possess this metal.  Gold does not corrode.  It does not disintegrate into nothing like the metal structure of a car when it’s exposed to winter roads that are covered in salt.

Gold lasts, it has real staying power.  And gold has also lasted longer than every other currency that mankind has ever used.  This is why it is a powerful tool to fight inflation.  Your gold will actually outlast any and every inflation.  Your gold will actually outlast governments, and even you.

Gold has a place in every smart investors portfolio.  The key to gold is to understand what it is, and what it is not.  Do not fall for the hype, educate yourself on gold’s special properties, then start to acquire gold slowly overtime as a way to “insure” the rest of your investment portfolio.