Posted 6th July 2023

Dollar Cost Averaging (DCA) With Gold Investments

“First of all, you have to recognize that there are different things that are called gold and are related. When you’re buying a gold mining company, you’re buying a stock, you’re not buying gold. When you are buying physical gold, there are only two ways to do it: you buy it and store it yourself, or you buy it and you have someone store it for you. Both alternatives have advantages and disadvantages.”

  – James Turk

James Turk is a legend in the precious metals sector. One of his recommendations for accumulating gold, whether you keep it safe yourself or store it via an online precious metals service like Kinesis, is to buy the same dollar amount each month and not worry about price fluctuations.

That’s the definition of dollar-cost averaging and it works well for the accumulation of physical gold and silver. Over a long period of time, when an asset is in a secular bull market, it will invariably experience intermittent periods of price decline.

Dollar-cost averaging will in theory enable an investor to take advantage of this price volatility and accumulate a large quantity of the asset at a lower average price over the specified time period, compared to trying to time the market.

Market volatility makes it impossible to time tops and bottoms, investment entries and exits. 

The stark reality is that converting fiat currency into gold and silver should not be viewed as a short-term trading strategy or investment, though both assets offer the opportunity to scalp volatility. Instead, you buy gold and silver for their wealth preservation attributes. To be sure, both metals are undervalued relative to all of the factors that dictate fair value.  

What is dollar cost averaging?

Instead of purchasing a financial asset at a single price point, with dollar cost averaging you buy in smaller amounts at regular intervals, regardless of price. Dollar-cost averaging is a strategy to manage price risk when you’re buying stocks, mutual funds, bonds, commodities – pretty much any financial asset. However, it works well with gold and silver in particular.

The chart below illustrates the power of using the dollar cost-averaging strategy for investing in gold:

dollar cost averaging gold investment

An investor who started to buy the same dollar amount of gold between the beginning of 1990 and the present, say at monthly intervals instead of putting that money in a savings account, would own a large quantity of gold at an average cost of roughly $750 per ounce (approximately). The total amount invested would have more than doubled by a considerable amount. 

I reference the investment strategy relative to a savings account because gold, like cash and sovereign-issued bonds, is considered a “Tier One” risk-free asset by the Bank for International Settlements – the central banks of global central banks. Thus, investing in gold can be regarded as an alternative, superior form of accumulating money in a savings account. 

I started buying gold in 2001. I regret not using a monthly or quarterly dollar cost average strategy because the average cost of my gold stockpile would be lower. And I started buying gold at $300 per ounce. 

Take advantage of price dips

Dollar-cost averaging works particularly well with gold and silver because we know that the price of each is in a 22-year uptrend that likely will extend for several more years. More important to the idea of dollar-cost averaging, we also know that there’s been an official effort to contain the price rise of gold and silver by the Western hemisphere central banks.

Despite this, gold has been the best-performing financial asset since 2001. This reality underscores the importance of using a dollar-cost averaging strategy to accumulate effective wealth preservation positions in gold and silver. 

Investment strategy: is it too late to start accumulating gold?

I’ll reiterate: gold should not be viewed as an investment. Gold (and silver) should be viewed as a hedge against the ability and willingness of governments and central banks to devalue fiat currencies.

Gold’s long-term track record for this purpose is impeccable. If you are looking for a total rate of return opportunities to exploit the fact that gold and silver are undervalued, look at precious metals mining stocks. But if you believe that policymakers will continue to implement policies that will further drive the value of fiat currencies lower, it’s not too late to start accumulating gold and employ a dollar-cost-averaging strategy for that purpose. 

Dave Kranzler is a hedge fund manager, precious metals analyst and author. After years of trading expertise build-up on Wall Street, Dave now co-manages a Denver-based, precious metals and mining stock investment fund. This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis. The opinions expressed in this article, do not purport to reflect the official policy or position of Kinesis.