Is gold a good investment? Will it lead to capital preservation and help and investor realize a return on investment? The question is polarizing, with some investors known as "gold bugs" being obsessed by it and others being completely dismissive of gold as an investment.
No, gold is a terrible investment
An investor should not put their money into gold under any circumstance.
Gold produces no dividends or yield
Unlike bonds, which pay a coupon, or stocks, which pay a dividend, gold has no yield. It can never return any coupon or divident to an investor.Explore
Gold doesn't grow, unlike investments in companies
It is much better to own a business like Coca Cola or Starbucks that can grow over time than gold, which can never grow or change. Stocks will compound money, but gold can't.Explore
Keynes called gold a "barbarous relic" and use of gold is based on tradition, not logic
The economist John Maynard Keynes famously called gold a “barbarous relic”, suggesting that its usefulness as money is an artifact of the past.Explore
Gold is highly volatile and when real rates are positive its price can collapse
Gold is highly volatile and trades like a long dated zero copuon bond, so it has very big swings up and down based on real rates. When real rates are high, you can lose a lot of money investing in gold.Explore
Yes. Gold is a great investment
Gold can preserve value for an investor in the face of inflation.
Gold has been used as money for over 4,000 years
All paper currencies have eventually ended up worthless replaced by other newer paper currencies. Gold, on the other hand, has been used as money for 4,000 years. If you hold cash in your porftfolio, you should hold gold instead.Explore
Gold is stable and durable
Gold does not dissipate into the atmosphere, it does not burst into flames, and it does not poison or irradiate the holder. It is rare enough to make it difficult to overproduce and malleable to mint into coins, bars, and bricks. Civilizations have consistently used gold as a material of value.Explore
Gold is neither good nor bad, it depends on the circumstances
Gold does well in some environments and poorly in others. The main determinant is whether real rates are positive or negative.
Real rates are the driver of gold
Gold's performance is not tied to the level of inflation but to the level of real interest rates. This goes contrary to what many thought and is called Gibson's Paradox. When real rates are positive, gold does poorly. When real rates are negative, gold does well. https://www.investopedia.com/terms/g/gibsonsparadox.asp and https://www.nber.org/papers/w1680.pdfExplore
Gold is a good investment when bonds have negative yields
Gold does well when real rates are negative. Given inflation is positive today and real rates are negative in nominal and absolute terms, gold will do very well. Unsurprisingly, gold prices are highly correlated to the percentage of government bonds trading with negative yields.Explore
This page was last edited on Monday, 24 Feb 2020 at 09:07 UTC