Gold Revisited


Anyone who has read my posts in the past, know that I am not a fan of gold as an investment.  It’s not that I think gold is awful, I just have a hard time investing in assets without measurable value drivers.

What I do have a real problem with, are the hucksters that try to sell gold with faulty logic and misleading rationale.  What that in mind, here are the reasons gold-bugs give to won the yellow metal, followed by why they are wrong.

1)      It is a store of value and cannot be debased like paper money.

a.       Wrong!  Instead of a central banker turning up a printing press and printing more money, in a golden currency world, you could have producers just amping up the mining operations, or those same central banks flooding the markets with their supplies.  The price went from $1,900 down to below $1,100 and is now around $1,250.  It’s down 30% over the last 5 years.  Store of value?!  At least your 0.5% bank account will still buy you the same amount of bread as it did 5 years ago; gold will buy you 30% less – not exactly storing its value.


2)      It’s a positive hedge against inflation.

a.       This is the same argument as above stated differently.  There are much better assets to own during periods of inflation, should inflation ever come back – for instance – STOCKS!  They actually perform much better as an inflation hedge than gold does believe it or not.


3)      Gold will be worth many times what it is now when Armageddon hits.

a.       There are so many better things to invest in if you are preparing for the apocalypse; namely, guns, ammunition, sandbags, canned food, and bottled water.  Gold should be very far down your list.    


4)      Gold has been money for 5,000 years and will always be considered money.

a.       The fact is that gold is priced in dollars.  All things residents of the US tend to purchase are priced in dollars.  The value of gold is stated in dollars and fluctuates wildly.  Sea shells were once considered tradable currency.  Gold has ideal elemental characteristics which lend it to being used as a currency, and therefore was for many years.  It can be melted and pressed into coins fairly easily, it won’t ever tarnish, it looks all sparkly and stuff… but just because something has been used in one capacity for a long time does not mean it is practical to be used in the same capacity in the future.  The only real currency is trust.  People trust that when they receive a dollar, they can take that dollar and exchange for a like amount of goods or service.  Most people who buy gold today do so in hopes that the price (in dollars) goes higher.  It’s a speculative trade.


For a great history on Gold and its place in the birth of money from the ancient Lydians to the 49ers, read Peter Bernstein’s Power of Gold: A History of an Obsession.

…and please do not listen to anyone trying to tell you how to buy gold based on technical indicators.  That’s exhibit number one on how fools and their money part ways.

Now if you have a collection of gold coins, or even a stash of gold bullion, I would not suggest you are foolish for keeping it.  By all means, keep it, but just treat it for what it is, a collector’s item.  It is a really pretty metal that someday in the future may be worth a lot more than it is now… but it also could be worth a lot less, and anyone who says they can say for certain otherwise is lying or incompetent.


Until next time…

“[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” – Warren Buffett