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.”

RELATED TERMS
  1. Gold Fund

    A gold fund is an alternative way for investors to own gold without ...
  2. Gold Reserve Act Of 1934

    The Gold Reserve Act of 1934 is an act that took away title to ...
  3. World Gold Council - WGC

    The World Gold Council is a nonprofit association of gold producers, ...
  4. Gold IRA

    A Gold IRA is a retirement investment vehicle used by individuals ...
  5. Bullion

    Bullion refers to gold and silver that is officially recognized ...
  6. Krugerrand Gold Coin

    Krugerrand gold coins are South African gold coins first minted ...
Related Articles
  1. Investing

    What Drives The Price Of Gold?

    Gold prices are based on the economy and actual uses, but there are many other factors that dictate gold's perceived value.
  2. Financial Advisor

    How to trade gold (GLD, GDX) in 4 steps

    Trading spot gold or gold futures, equities and options isn’t hard to learn, but the activity requires skill sets unique to these markets.
  3. Investing

    The Midas Touch For Gold Investors

    Find some golden opportunities by investing in gold commodities or futures contracts.
  4. Investing

    How Much Disaster Can Gold Hedge?

    Gold holds up well in the face of fear, but offers little in times of true collapse.
  5. Investing

    Why the Price of Gold Is More Than Just Supply & Demand

    The price of gold is driven by multiple factors that work together in at times counterintuitive ways. Understanding the place of gold in a portfolio requires a look at history.
  6. Investing

    Three Ways To Short Gold

    Investor enthusiasm for gold has been falling by the wayside. For portfolios, that could mean it's time to short the metal.
  7. Investing

    Gold ETF Buying Reached the Second Highest Level on Record (GLD)

    Learn about the factors that are pushing gold demand to its second-highest level ever and where the price of gold could be heading in 2016.
  8. Financial Advisor

    The Effect of Fed Fund Rate Hikes on Gold

    Explore the historical relationship between interest rate increases and the price of gold, and consider what effect a fed funds rate hike might have on gold.
  9. Investing

    The Better Inflation Hedge: Gold or Treasuries?

    Owning gold may not be the best option for hedging against inflation. What else, then? Try treasuries or gold ETFs.
  10. Investing

    What Is Wrong With Gold?

    Despite its historic and symbolic appeal, this metal is simply a commodity. Here we explore its meaning as an investment.
RELATED FAQS
  1. What is the gold standard?

    Learn more about the gold standard, including its complicated global history and its connection to the fiat system and the ... Read Answer >>
  2. Has gold been a good investment over the long term?

    Examine the investment performance of gold dating back to 1933, when President Roosevelt required all gold bullion, coins ... Read Answer >>
  3. Which country has the most gold?

    Learn which countries hold the most in gold reserves, and explore the reasons holding gold may be beneficial to a country's ... Read Answer >>
  4. What countries have the largest gold reserves?

    Find out which countries have the largest gold reserve stockpiles, and learn why governments still feel that it's necessary ... Read Answer >>
Hot Definitions
  1. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  2. Current Assets

    Current assets is a balance sheet account that represents the value of all assets that can reasonably expected to be converted ...
  3. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  4. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  5. Cost of Debt

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
  6. Depreciation

    Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account ...
Trading Center