E Gold And Unrealistic Expectations - Gold Is Not An Investment

Gold has been characterized as insurance, a hedge against inflation/social unrest/instability, or, more simply, just a commodity.  But it is treated most of the time, by most people, as an investment.  

This is true even by those who are more negative in their attitude towards gold.  "Stocks are a better investment."  In most cases, the logic used and the performance results justify the statement.  But the premise is wrong.  Gold is not an investment.  And, there have also been extended periods of time when gold outperformed stocks.  (To read more about gold's performance versus stocks see:  Gold: Warren Buffet Is Absolutely Right - And Wrong)

When gold is analyzed as an investment, it gets compared to all kinds of other investments.  And then the technicians start looking for correlations.  Some say that an 'investment' in gold is correlated inversely to stocks.  But there have been periods of time when both stocks and gold went up or down simultaneously.

One of the commonly voiced 'negative' characteristics about gold is that it does not pay dividends.  This is often cited by financial advisors and investors as a reason not to own gold.  But then...

1) Growth stocks don't pay dividends.  When was the last time your broker advised you to stay away from any stock because it didn't pay a dividend?  2) A dividend is NOT extra income.  It is a fractional liquidation and payout of a portion of the value of your stock based on the specific price at the time.  The price of your stock is then adjusted downwards by the exact amount of your dividend.  3) If you need income, you can sell some of your gold periodically, or your stock shares.  In either case, the procedure is called 'systematic withdrawals'.

The (il)logic continues... "Since gold doesn't pay interest or dividends, it struggles to compete with other investments that do."  In essence, higher interest rates lead to lower gold prices.  And inversely, lower interest rates correlate to higher gold prices.

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Alpha Stockman 1 year ago Member's comment

Enjoyed this article, looking forward to reading more by you.

Joe Economy 1 year ago Member's comment

Perhaps gold as a commodity is not the greatest investment because of the obvious liabilities in owning actual gold (I guess no-one told Prince that when he stockpiled gold bars), but what are your thoughts on gold mining stocks ABX GDX or gold ETFs like GLD? I am not sure ruling out gold ownership because it doesn't pay interest nor provide dividends is the best argument against owning it. Perhaps its just not a practical investment to own, buy or sell. One thing's for sure, nothing compares to the undeniably good feeling one can get when you can touch and feel a gold bar. You just don't get that with a stock or ETF, do you?

Gary Tanashian 1 year ago Contributor's comment

I agree with your view that gold is stable. It does not move; everything around it does. But it is not money where it is not an official medium of exchange. It is an anchor to monetary value though.