Post by Barry Myers
Before we get started, notice the title of this post. This is why I personally don’t invest in gold. If you’re all about it and want to talk about all the money you’ve made in the last ten years or so in gold, wear it out. I don’t own any gold (save my wedding band) and don’t intend to go buy a bunch (any) of it anytime soon. That being said, I wanted to write this post in response to all the hype in the thousands of ads and storefronts that have popped up touting the value of gold as a great investment (and questions from you guys about why we don’t invest in it). So here are some reasons I think gold investing makes no sense.
- How do you value it? Unlike a company, gold has no accounts, no profit, no assets, no leadership team, or anything else to look at except price information over time. I can tell what the market price of gold is but I can’t tell you if that’s a good price or a bad one. I can only tell you that’s what the price is today vs. the price yesterday. As someone who likes to invest in something that has a track record I can review and study, this aspect of gold makes me uneasy.
- What is its utility? Is gold worth something, other than its value as gold? The answer is ‘yes’ but from all my reading it seems only 10-15% of the gold mined in the world today is used industrially. The rest is sold for jewelry and/or investments. Copper is expensive but I understand why – just about every electrician out there uses copper for wiring. You would never do that with gold, even though it has similar properties of electrical conductivity. In other words, if the market decided gold wasn’t important as an investment, gold has no real utility value.
- There’s no income potential. I don’t necessarily look to invest in something that pays dividends, but many of my investments do. I reinvest all those dividends, which helps quite a bit to increase my return on investment. Gold can’t do that – all it can do is go up/down in market value (and no one can really explain why it does other than speculation).
- Inflation is certain, but the right hedge against it isn’t. Most of the intelligent arguments out there discuss gold being a good protector against inflation. The best example of history when this played out was Germany’s hyperinflation that occurred between World Wars I and II. During that period, the market price of two things avoided the toll of inflation: gold and…cigarettes. Yep, tobacco rolls were an EXCELLENT investment in Germany during that time. Why aren’t people screaming on the TV and radio for us to invest in Marlboro if hyperinflation is on its way?
- Pick a disaster…any disaster – This is one Dave Ramsey mentions when someone asks him about gold. The argument FOR gold is that if the money system fails, we’ll return to the days where we’ll exchange gold for goods. Let’s consider Hurricane Katrina (since that’s the example he uses). What was held as valuable? Safe food, drinking water, gasoline and dry/clean clothes topped the list. Gold – who cared about gold? This story has been repeated in Haiti, Japan, etc. when things have gone bad.
- We’re in a gold boom. We’ve all heard the advice of buy low and sell high. Gold prices are at historical highs – why would we buy it now? As an investment, buying gold when it is at its highest price ever is not very intelligent.
- Lots of REALLY SMART people are avoiding gold investing. Warren Buffet (you know, one of the richest men in the world and one who is REALLY GOOD at investing) said the following in a recent TV interview:
“When we took over Berkshire, it was selling at $15 a share and gold was selling at $20 an ounce. Gold is now $1,600 and Berkshire is $120,000. Or you can take a broader example. If you buy an ounce of gold today and you hold it at hundred years, you can go to it every day and you could coo to it and fondle it and a hundred years from now, you’ll have one ounce of gold and it won’t have done anything for you in between. You buy 100 acres of farm land and it will produce for you every year. You can buy more farmland, and all kinds of things, and you still have 100 acres of farmland at the end of 100 years. You could you buy the Dow Jones Industrial Average for 66 at the start of 1900. Gold was then $20. At the end of the century, it was 11,400, and you would also have gotten dividends for a hundred years. So a decent productive asset will kill an unproductive asset.”
Makes sense to me. And when billionaires talk about what they do to make money, I usually try to listen.
Well there you have it. Seven reasons I don’t believe gold investing (now or ever) makes sense. If I’m wrong and you make millions in gold, I’ll let you rub it in…as long as you’ll let me drive your Porsche. 😀