DEFINITION of Gold Bug
A gold bug is an individual who is very enthusiastic about gold as an investment and its prospects for significantly increasing in value. Simply put, gold bugs are bullish on gold. As such, the term gold bug is also used to refer to analysts who consistently recommend buying gold. Gold bug is also written as goldbug.
BREAKING DOWN Gold Bug
Gold bugs fall on a spectrum. Mild gold bugs may keep a hedge in gold and increase holdings in times of volatility. Using gold as a preferred safe haven has worked in many challenging markets, and gold bugs of this type can hardly be faulted for having a preference. In fact, in high value portfolios holdings of gold and other precious metals can make sense from a diversification perspective. On the extreme end, however, gold bugs obsession with gold often has more to do with distrusting the modern banking system than trying to protect the value of a diversified portfolio.
Gold Bugs and the Gold Standard
Where gold bugs get interesting is in their view of gold relative to international fiat currencies. There are gold bugs believe that gold is a stable place to store wealth, and there are gold bugs who see gold as the only true currency. These gold bugs see the world as being on a fatal economic course ever since the major world economies abandoned the gold standard. Gold bugs of this nature are increasing their holdings of physical gold as an alternative to the modern financial system. Perhaps with the idea of having it to trade for food, guns and ammunition when the global economy crashes and the world is thrown into chaos where only hard goods and precious metals matter.
Gold Bugs and Historical Gold Prices
Gold bugs view gold as a safe investment that will protect them from currency fluctuations or downturns in the financial markets. Although gold is widely known as a standard of value, its price - like that of any other precious metal or commodity - fluctuates widely. For example, the price of gold declined from more than $800 per ounce in the 1980s to less than $300 per ounce in the 1990s. Then from 2000 to 2010, gold skyrocketed from around $300 an ounce to $1200 an ounce. It topped out in 2011 at around $1900 an ounce before settling into a band of roughly $1200 to $1400 since.
So there are time when selectively being a gold bug has paid off. A gold bug who bought in 2000 and held or, better yet, sold in 2011 saw a return on investment between 300% (still holding) and 530% (perfect timing sell in 2011). Gold bugs that bought at average prices between 2011 to 2013, however, are sitting flat or at a loss of 30% on the extreme end. That may be a fine roller coaster ride for people who plan on shaving bullion coins for bullets, but it throws into question the stable part of “stable store of wealth.”