Gold, Phelps, and Your Portfolio

You know, it seems that every four years I, along with many of my fellow Americans, pay a lot attention to one precious metal… One metal that we hear about over and over as we watch the Olympic Games – Gold!  That’s right – the American teams are killing it once again on the world’s sporting stage, winning nearly twice as many overall medals as the second place country as of right now.  And how about this guy Michael Phelps? He’s got five gold medals in Rio, and now 23 overall, ending his career as the world’s most decorated Olympian.  That’s a LOT of gold.

So what does this mean, from a financial perspective? Let’s go back in time… At the games in Athens in 2004, he won 6 gold medals.  Back then the price of gold was right around $400 an ounce.  Four years later, in Beijing, he won 8 more gold medals, and by then the price of gold had risen to about $875 an ounce.  In 2012, in London, he added four more to his total, right about the time that gold had hit $1620.  And this past week, he won six more, with gold at around $1340 an ounce. (source) I can see what’s happening here – Michael Phelps is Dollar Cost Averaging his way into the gold market!

Okay, not really… First of all, the medals haven’t been made of solid gold since 1912.  In fact, about 99% of a gold medal consists of silver.  So Michael Phelps really only has about 5 ounces of gold in his trophy case, total.  Not bad, but only a fraction of his entire net worth.

The stats on gold are rather interesting.  Gold futures have been in an upswing all year and are now near $1350 per ounce. And what does the so-called “smart money” think?  Well, George Gero, managing director at RBC Wealth Management, says gold could hit $1400 an ounce by the end of the year unless the Fed raises interest rates. (source) But will he be right? Who knows? What we do know is gold can play a small but important role in an actively managed portfolio invested for the long haul.

You may have seen commercials that tell you gold is the greatest investment you can buy, but truth is, gold is volatile, and owning too much of it can be very risky.  Maybe it’s better to take the Michael Phelps approach and keep the majority of your gold right where it should be – hanging around your neck!

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