First, let me qualify that headline by saying this applies only if gold continue to at least hold its value. If the price of gold suddenly drops significantly, then your savings will take a corresponding hit.
So while using gold as vehicle for savings has been a good bet for several years now, there is no guarantee that the next few years will deliver the same results.
Also, under any circumstances, it would be unwise to put all your savings into physical gold. The rule of diversification still holds true.
OK, now we have done with the cautions and warnings, let’s look at why physical gold can be a good way to save.
The primary reason is that once you have taken physical delivery of some gold coins or gold bars, it isn’t very easy to part with it again.
First, one simply doesn’t want to.
Secondly, it’s a little inconvenient.
If you bank online and have a savings account, it’s incredibly easy to transfer some money from your savings account over to your checking account. You can do it in a couple of minutes, with a couple of clicks.
But of you want to cash in some gold coins, you have to take them to a dealer. That usually means getting in the car and driving for a while.
The ease of taking money out of savings, or lack thereof, is important.
Let’s say you and your family are in an electronics store, see a beautiful big-screen TV and are sorely tempted to buy it. It’s going to be expensive, and it’s an impulse purchase, driven by the emotion of the moment.
With electronic banking it’s easy to transfer money out of your savings account. You can probably do it there and then, in the store, with your smartphone.
But if you have your savings in gold, you are protected from impulsive, emotional purchase choices. By the time you have collected your gold and driven to a dealer, that impulse will likely have passed.
You can protect yourself further by deliberately putting more of your savings into either gold or other savings vehicles which make it hard for you to get easy access to the money.
As I mentioned, a savings strategy that includes physical gold bullion works gangbusters when the price of gold is rising. And it works well when the price is stable. Even if the price falls a little, you’ll probably still be ahead of the game because you won’t be spending hundreds or even thousands of dollars on unnecessary purchases.
It’s only when the price of gold falls significantly that this strategy falls apart and no longer makes sense.
Right now, although the price of gold is high, long-term fundamentals suggest the price could go higher or, at least, not fall significantly.