Whether you're a seasoned investor or just starting to learn about finance, there is one name that stands out in the world of money management: Suze Orman. A highly sought after financial advisor and author, Suze is well known and respected for her sound advice on investing. So it's no surprise that many people look to her for guidance when deciding where to put their money. But why does she recommend avoiding commodities such as gold?
Gold is speculative investment
In a recent podcast episode, Orman reminded listeners that she had recommended Barrick Gold. The stock, whose ticker symbol is GOLD, was paying a nice dividend and the price was around $18 a share. Since her recommendation, the price of the stock has gone up but she believes there may not be more upside.
Gold was trading at $1,923 per ounce at the time of recording. Resistance is the level at which supply is strong enough to stop the stock from moving higher. Orman stated that gold recently broke through the $1,900 resistance level, but the next resistance level is only at $2,063 an ounce. Since the price of gold is close to the next resistance level, she believes investors should wait and see the price action of gold.
Orman also states that investors should put no more than 5% of their money in commodities like gold, silver, or copper. They should only invest funds that they are also willing to lose because commodities are very speculative. Speculative investments carry an extremely high level of risk. While it also opens the door for a substantial profit, the chances of losing all your money is high.
Investing in commodities is speculative because investors sink considerable sums of money into a gold mine, for example, in hopes that it will pay off. Unfortunately, sometimes the gold extracted may not be enough to yield a positive return.
Gold doesn't generate income
Warren Buffett is known for his belief that gold should be avoided as an investment because it doesn't generate income like other investments do. Gold doesn't produce any income, so you can't make money from interest or dividends like you would with other investments such as stocks, bonds, and real estate. In fact, if you invest in gold, you may end up losing money due to inflation or changes in the market.
In the 2011 Berkshire Hathaway shareholders letter, Buffett stated that investments like gold "will never produce anything, but…are purchased in the buyer's hope that someone else -- who also know that the assets will be forever unproductive -- will pay more for them in the future."
In addition, commodities like gold are not liquid like cash or other investments. This means that if you need to access your money quickly, it could be difficult to sell your gold at a price close to what you paid for it. And since the value of gold can fluctuate greatly over time, there is always the chance that your investment could be worth much less if the market crashes.
All in all, Suze Orman advises against investing in gold right now. While some believe gold is an important investment that hedges against inflation, it isn't without its risks. Warren Buffett has also long advocated that investors stay away from gold and invest in companies that generate income or produce something valuable. For most people looking for long-term financial security, both Buffett and Orman recommend traditional investments such as stocks and bonds.
