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hi i'm jimmy in this video we're going to look at gold we're trying to determine if gold is a good addition to our investment portfolio and then we're going to look at some of the pros and cons of owning gold and then we're going to take a peek at some of the big news in gold and that's the fact that warren buffett's berkshire hathaway has recently gotten involved in gold so let's jump in and start with why we might buy gold so gold is known as being a good diversifier when we look at this chart of the S&P 500 compared to gold going back the past five years well we can see signs of this being true now this is a chart for both gold's performance and the s&p 500 performance going back five years but we can see it starts at zero and over this time period we can see that they've averaged about the same return the total return at the end of this time period is about the same but they got there in very different ways so we can assume that there is some positive correlation between the two even though how they got there is different and this is where gold can be a good help it's where it can be a good diversifier and it can help our portfolio when we look at this spike here well we can see that the s&p 500 went up and gold was falling and then as the s&p 500 turned sharply lower at the end of 2018 well gold did just fine continuing to move higher now obviously this didn't work for every time period there are certainly time periods here where both gold and the s&p went in the same direction and if we wanted to see diversification from a numbers perspective while i put together this correlation table going back the same time period for this we have gold the s&p 500 nasdaq the dividend aristocrats etf and the dow jones industrial average now just so we're all on the same page correlation shows us how two stocks or commodities or etfs how closely they move together how at the same time do they move in the same direction correlation runs from a negative one all the way to a positive one and zero falls right in the middle so a positive one would imply that those two stocks or two etfs or whatever they are move exactly the same when one moves up they both move up when we look at the negative one that would imply that they move exactly the opposite directions in zero uh when you get closer to zero well that really implies that they're not that correlated they you can't really use one to predict the other so when we look at something like NOBL that's a dividend aristocrats etf and then we would compare that to the S&P 500 well we can see that these two are highly correlated over this time period this 0.955 would fall about here on our correlation scale but gold on the other hand we can see that gold has a much lower correlation coming in at 0.18 that would fall about here that implies that gold and the s&p 500 don't necessarily move together gold can go up and the s&p 500 can go down and we saw examples of that and then we may notice that gold's correlation to nearly all of the other major indices are all fairly low or close to zero now they are positive so that implies that there is somewhat of a positive correlation but it's a small one so overall we can say that gold has been at least during this time period an excellent diversifier to a stock portfolio now this brings us to the next benefit of gold and that is that gold is quite a good diversifier in an inflationary environment when we have high inflation gold should do well and let's face it the federal reserve is doing a lot to push us into an inflationary environment this is the inflation chart going back to 2000 this is the cpi year-over-year changes cpi is short for consumer price index and yes we can debate as to whether or not this is a fair representation of inflation i've got a pile of student loans and a crazy high monthly health insurance bill that says this is not a fair representation but either way this is one of the most popular data points for economists to use so we can stick with it for now so as far as inflation goes when we have high unemployment it's tough to have iron high inflation since consumer spending represents a big piece of the inflation pie so with 10 unemployment it's tough to drive up the prices on average goods and services but let's imagine that we had a five-year outlook on the economy it's very possible that we say inflation could become much higher than it is and if that's the case well then it's possible that gold goes up since inflation is one of the key drivers behind the price of gold so this could be another positive reason to add gold to our portfolio but now for the negative now one of the in my opinion one of the biggest negative drawbacks to investing is gold is when do we buy it what is gold really worth we know that there are a ton of economic influences on the price of gold but personally i have trouble saying that gold is really worth x maybe we can say that gold should be higher than it is now or lower than this that now or the economic impacts that are coming down the road something like inflation are going to favor the price of gold going higher but how do we calculate the fair value of gold i don't think there is a good way to come up with a fair value so for me i think that makes investing in gold tricky personally since i prefer to be a long-term value investor and you know who agrees with me or at least used to agree with me this guy if you if you buy an ounce of gold today and you hold it 100 years you can go to it every day and you can you can coo to it and you can caress it and and you can fondle it and and and 100 years from now you'll have one ounce of gold and it won't have done anything for you in between now that video was from a few years ago but the point remains the same we are banking when we buy gold today we are banking on our ability or not our ability but the market's ability to allow for us to sell gold at a higher price to somebody else later why well that's tough to tell now i know what many of us are thinking didn't buffett just recently get involved in gold in fact we might have seen headlines like these and first i think that we should clarify that despite these somewhat misleading headlines buffett actually bought barrick gold ticker symbol g-o-l-d not gold the commodity and i think that's a very important distinction it's very possible that gold stays let's say right in this area and barrick gold let's say they increase their production and therefore they make a larger profit and in theory the stock could move higher despite the fact that if we invested in gold the commodity gold might not go up and barrack gold could go up so i just wanted to point out the difference between buying a gold the commodity and buying a gold mining company but although it's not exactly the same it is a very important point that they do move very close to each other the higher gold goes the more profit a gold mining company will make and that brings us to the second point and that is that i think it's very possible that warren buffett did not buy barrett gold himself buffett has two portfolio managers that work for berkshire hathaway and i think each of them manage somewhere in the 19 to 20 billion range right now so it's very possible that they took a 500 million 550 million dollar stake and put it into barrick gold and if we're wondering no they don't have to clear their investments with buffett himself he's come out a few times and said that they can buy whatever they want whenever they want they can buy as many or as few stocks as they choose so personally i think that this is likely what happened and i think it's very possible that they're investing in gold for the reasons we discussed the economic environment right now is favoring the fact that gold could keep moving higher or at least stay the same and if that's the case owning a gold mining stock could make a lot of sense so now we ask the question does it make sense to add gold the commodity to our portfolio and if so how should we buy it well personally i think it could make some sense here like i said between what the fed is doing in the overall economic environment it's very possible that gold at least stays high possibly continues to move higher so for many investors i think gold could be a very good addition to their overall portfolio now personally i'm not buying it and that's because i have limited funds invested and i only own a couple stocks i own uh disney and intel right now and i'm continuing to add to that portfolio to try to diversify it i wouldn't add gold to that portfolio until i thought it was frankly complete and i was looking to add more diversification benefits to it right now i need to spread out the investments among different sectors and other growth opportunities but if i was going to buy it well i think it makes the most sense to buy it in the form of an etf there are many gold etfs that track the price of gold we buy the etf they take that money they actually go out and buy gold stored in a vault and the price of the etf should track the gold the prices spot the spot price of gold very closely and at least the big gold etfs tend to be much more liquid than buying physical gold now gld is the largest gold etf out there but i'm actually a bigger fan of bar bar b-a-r is the ticker symbol that's the granite shares gold etf and it does exactly what gld does except bar charges a much smaller fee so for me i think that's worth it considering that we're getting the exact same thing now i do think i should point out that i actually have a relationship with granite shares they don't pay me or anything but my father owns an investment company that created an index that granite shares uses for their hips etf hips is for high income pass-through securities and basically what it does is it's a high dividend etf and my father when my father was reconstructing that index he actually called me brought me in said hey will you rebuild this for me i never done an etf so i was very excited to give it a go and he was willing to pay me to do it so i went over and i did that with him and that was a cool experience and i actually did a video where i went through how i went about building the index and how i went about building the rules for the index which the etf would track and if you're curious perhaps that could be a good next video for you to watch i got a link right here i got a link in the description below and thank you so much for sticking with me all the way to the end of the video i really appreciate it thanks and i'll see in the next video
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