A close friend recently asked me what I think of gold as an investment. I gave him the following response: “Gold is not an investment. At best it’s a speculative commodity.”
There’s no doubt gold has value. It’s an attractive metal that doesn’t easily tarnish, which is why it’s been used as a decoration for centuries. In addition, it has long been universally embraced as the basis for monetary backing, which imbues it with an allure of indefinable worth. It’s this property that caused it to be accepted into the public’s imagination and thereby be effectively marketed.
With this said, let’s take a closer look at the subject of investment to see where and how gold fits in. It’s my belief an investment must fulfill two criteria. First and foremost it should possess a clearly predictable income flow. The interest paid on corporate bonds and treasury notes meets this requirement, as do dividend payments on common or preferred stock. Rental income from both residential and commercial real estate also fulfills this stipulation, often quite nicely.
The second criterion to qualify as an investment is that it will have a clearly identifiable basis of value unrelated to such frivolities as a popular fad, unsubstantiated profit reports or effective marketing. Thus you’ll avoid such offerings as the once sought after pet rock, the short term notes peddled by Charles Ponzi and Tesla common stock at its current price of $371 per share.
I’ll conclude with this final thought. Even though gold may on occasion generate a profit, there’s no way to anticipate when. Despite recommendations to the contrary, there’s no sound justification for investment in it, whether as the base metal, the specie, or stock in related companies. It generates no cash flow and its basis of value is illusory. The market for gold long ago entered the pseudo-religious realm, with adherents extolling their virtues, much as with Scientology or transcendental meditation. These markets are, by their nature, subject to manipulation, suggesting performance cannot rationally be predicted. I urge you to give gold a wide berth.