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Gold is at a an all-time high. Should you buy, sell or wear it?

Gold is refined at a non-ferrous metals plant in Russia. (Bloomberg)
Gold is refined at a non-ferrous metals plant in Russia. (Bloomberg)

Gold continues to make headlines daily with its roller coaster ride to new record highs. With all the mixed information and “expert” opinions, it is easy to become confused when considering it as a possible investment.

Given the current challenges the world and the United States face, the possibility to see yet higher gold prices does exist. The markets continue their volatile ways and seem to have rebounded in the face of the ongoing uncertainty created by the pandemic.

But is it a good investment for your portfolio?

Of all the major asset classes, gold also has been a standout lately.

Until the pandemic hit, gold had no sustained move over the past 10 years. Since March 19, gold has risen more than 30 percent, rising more than 10 percent in July alone.

Now that gold has hit $2,000 an ounce in mid-August and backed off slightly, what does that mean for consumers?

Gold is used in industrial products and mainstream consumer goods. With every new high, consumers likely will have to pay more for everything from engagement rings to crowns for their teeth.

With all the global and political uncertainty, gold is often considered a safe-haven during these unsettling times.

The other side of the gold trade

Although gold is considered a crisis hedge, it also is viewed as an inflation hedge.

As of yet, government data overall has not reflected significant inflation. Once the economy does catch gear, the Federal Reserve more than likely will pull money back out of the economy, with the goal of alleviating inflationary pressures. But has stated it will be an extended process.

Gold prices likely will pull back if this happens.

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Also, gold does not pay dividends or interest. It is an asset you can own for extended periods of time and receive nothing in return.

Gold is a cyclical asset, and investors typically depend on timing their purchases to capitalize on its price movements. Any investment strategy that relies heavily on timing is typically a challenging approach.

Also, central banks hold huge amounts of gold bullion that they occasionally threaten to sell from time to time, which of course could weaken the price.

It is important investors look at their portfolios historically.

Used correctly, gold and gold-related investments can be highly effective components of a properly diversified investment portfolio.

So the questions is, should you own gold?

After 10 years of overall rising prices, investors should be somewhat careful when considering this as an investment alternative.

The gold trade currently is a very crowded space.

Everyone is talking about it, everyone wants to own it, new gold investment products are being created on a daily basis to allow individuals to conveniently invest, multi-level marketing businesses have been created to sell gold, and gold dealers across the globe never have been busier.

These things often indicate a market nearing a relative top, not a market bottom. (Remember the dot.com days or the “they aren’t making any new land” days ... .)

Gold investments are starting to have the same feel as these other asset classes a few years back.

So the answer is, it depends.

Why are you buying it, what do you expect out of it?

Is it to hedge inflation, out of fear, or speculation? For that engagement ring?

Do you have a strategy for selling it?

Again, do your homework to answer these questions honestly.

Identify the real purpose behind your decision before you take the plunge — in the market or at the altar.

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This article is provided by Pete Alepra, a financial adviser at RBC Wealth Management in Cedar Rapids; peter.alepra@rbc.com. The opinions in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. Past performance is no guarantee of future results. RBC Wealth Management is a division of RBC Capital Markets, a member NYSE, FINRA and SIPC.

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