Should I invest my retirement savings in gold?

CNN/ Newswire | 4/19/2017, 9:45 a.m.
Traditionally, there have been several rationales for including gold in a portfolio. Perhaps the one most often cited is that ...
Gold traded as low as $1,051.60 an ounce on Friday, the cheapest price in nearly 6 years. FILE -- An illustration depicting gold bars falling from the sky.

NEW YORK (CNNMoney) -- Is there a good reason I ought to include gold in my retirement portfolio? -- Brian

Traditionally, there have been several rationales for including gold in a portfolio. Perhaps the one most often cited is that gold can provide a hedge against a jump in inflation. But while gold does indeed do a pretty decent job of tracking changes in the inflation rate, this Vanguard report shows that short-term TIPS, or Treasury Inflation-Protected Securities, do a better job of hedging against inflation with much less volatility. So if it's inflation protection you want, you can probably get it without gold's roller coaster-like price gyrations by investing in short-term TIPS (or more likely a fund that invests in TIPS).

Another reason many people turn to gold is because they're looking for a safe haven in times of political or economic uncertainty. Back in 2011, for example, when fears that Greece and several other European nations might default on their debt sent stock U.S. prices tumbling by almost 20%, the price of gold gained more than 30%, jumping from just over $1,400 an ounce to nearly $1,900. After the European debt crisis passed, however, the price of gold retreated and recently sat below $1,300 an ounce, or more than 30% less than what panicky investors paid five and a half years ago.

Of course, gold prices could soar again if, say, tensions continue to build between the U.S. and Syria or investors begin to feel more uncertain about the economy's prospects under a Trump administration. But the pop that gold experiences in time of turmoil and uncertainty tends to be temporary -- and people who rush into gold seeking shelter can later find themselves nursing losses.

Finally, some people are drawn to gold because, unlike the stock market, they see it as solid and tangible, an investment they feel they can count on to hold its value. But this makes no sense on the face of it. Gold prices are as volatile as stock prices, if not more so.

So if you're looking for a place to put money you really need to maintain its value at all times (an emergency fund, a down payment for a house you plan to buy soon, cash to cover a year or two's worth of retirement living expenses beyond what Social Security will cover) then gold is a terrible fit. The money that absolutely, positively must be there when you need it belongs in cash equivalents like savings accounts, CDs or money-market funds, not gold.

That said, I suppose you could make a case for investing a small portion of your retirement savings -- or any money you're investing for the long-term in gold -- provided you go about it the right way. By which I mean investing, say, 5% to 10% of your portfolio to gold and invest the rest in a diversified portfolio of stocks and bonds. Essentially, gold becomes another asset class in your portfolio, adding a bit more diversification. To make this approach work, however, you must periodically rebalance your portfolio so that your gold holdings remain the same percentage of your overall holdings that you originally set.