When investing in gold you will often hear it called a long-term investment. What exactly does long-term mean? You will typically hear precious metals companies refer to a long-term hold as a period from 3-5 years up to 10 years or possibly more. Where did this come from? It was illegal in the U.S. to own gold from 1933 to 1974, and prior to that gold was pegged to the dollar for 100’s of years. So owning gold bullion as an investment is a fairly new thing. Its track record is currently at 36 years. When compared to other investments that is a fairly short time frame.

If you are reading this blog for the first time then we must pause and differentiate between the two types of gold you can own, bullion and numismatic gold. These two types of gold have different strategies for ownership behind them and different spreads (see previous blog post). These factors will determine length of hold. For more on the different types you can read bullion and rare gold coins.

My thoughts on long-term hold and where it came from is this. When the dollar was removed from the gold standard in 1970 the price action was allowed to free float. The price of gold rose from $35 per ounce to $850 per ounce in January of 1980. That was a fast and significant rise in the value. From there gold fell to its low of $252 per ounce in 1999, with ups and downs all along the way. That was a fairly slow and significant fall. Because gold as an investment is a fairly new opportunity companies want to disclose to their clients that it may take a while to grow your gold’s value. Gold’s recent climb from $252 per ounce in 1999 to $1,115 where it stands today has been a fairly steady rising pace. So if you bought bullion in 1999 you would have realized over a 340% gain.

There are times when it has taken a few years to see your gold grow and there have been times when it would have taken many years to see your gold grow. This is why everyone needs to DIVERSIFY their portfolios.

When comparing the two different types of gold, bullion and numismatics, these tend to perform differently. If you look at a PCGS chart you can clearly see that over the past 40 years numismatics have outperformed gold bullion. This is due to a few factors that make it unique, but mainly it is rarity. Because the cost of doing business is higher, it will take you longer to make up the difference, which is another factor in “long-term.” It should be noted that bullion and numismatics do not move in lock step with each other. In fact from 1987 to 1989, bullion lost roughly 10% of its value while numismatic coins according to PCGS went up over 600%.

The net of this is that sometimes it can take a short period of time to cover your costs of doing business, and other times it can take years. That is why it is noted by companies to think long-term when it comes to gold ownership, because no body really knows. In addition, many people choose gold to protect against a collapsing dollar, and in that case it could be a very long hold.