The following comment has 18 up votes:
Gold is really not a good investment. – Almo (source)
What's the deal with it? Is investing in gold bars equally bad as investing in gold jewellery?
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There is a lot of data out there to compare gold to returns of various products - not sure this should be closed but not sure enough people would put effort into a conclusive enough answer. – Ross Nov 3 '15 at 20:59
Gold is not really an investment at all, because it doesn't generate an income. It's only worth money because people think it's worth money (it has some industrial uses, but most gold is used as a store of value and not for industrial purposes), not because of its income stream.
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2You could say essentially the same thing about US dollars (and other world currencies) and yet there are a lot of us chasing them for their "value." Gold at least has some industrial uses as a conductor. I don't think this answers the question. – user32479 Nov 3 '15 at 16:54
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3US dollar bills are not an investment either. US dollars held in a bank account generate an income in the form of interest. – Mike Scott Nov 3 '15 at 17:38
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1If you live in a country with a tanking currency, then I think you could regard US dollars (or Euro or Yen, etc.) an investment. But we're kind of in semantics now and the question is closed anyway... – user32479 Nov 3 '15 at 17:42
If you buy a gold brick and put it in a pillow, after one year you still have one gold brick. People may value it more than before or less then before, but it's still the one gold brick you had.
If you buy a cow and put it on a pasture, after one year you have a fatter cow and plenty of milk. You now have more of the cow and milk you didn't have before. Now that's an investment.
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I think what the person meant to say is that Gold is not a one stop solution. There's nothing wrong with having Gold in an otherwise diversified portfolio but you need to be aware about the potential downsides:
- Gold doesn't pay any income in form of coupons or dividends. So even if the price doesn't move at all, in real terms you will have lost money (assuming inflation above 0)
- While it may be true that in the very long run the price of gold is stable (disputable), gold can have strong fluctuations in value. So if you find yourself in a position that you have to sell, you might to so at a big loss.
The problem with gold is that its value nowadays depends mainly on investor confidence, or the lack of it (actual demand for gold cannot explain the rise in value gold had after the crisis). If people are afraid the world and currencies with it will go to hell, the gold price will go up. Why? Because if currencies seize to exist, Gold will still be accepted. It can replace currencies.
What many people tend to forget: let's consider the extreme example and currencies really cease to exist and all hell breaks lose. What good are gold bars at the bank, or even at home, for that matter? You'll be better off with gold coins to use in barter and to pay off marauders. But that's not about investing anymore, that's survivalism.
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2In your last example, it also assumes that in a post-apocalyptic scenario that anyone cares about gold anymore enough to give it value. – JohnFx♦ Nov 3 '15 at 16:20
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In a post apocalyptic scenario, I'd personally barter for weapons, ammo and fuel. – littleadv Nov 3 '15 at 16:23
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The part about demand also misses a key point: It's still standard to state the value of gold in US dollars. That means the stated price of gold goes up if it's perceived value goes up, but it also goes up if the US dollar devalues while gold's value stays equal as measured in other currencies. – user32479 Nov 3 '15 at 16:57
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Hehe, currencies disappearing doesn't mean we'll all be fighting for Guzzoline all of a sudden. :) Gold has been around for millennia so it's more likely that people will believe in its value and be willing to trade for it. – vic Nov 3 '15 at 19:08
