Why do people insist that gold is a good investment?
April 19, 2010 by
Filed under gold investment
When I was young, I think in the late 1970’s gold was going for $800 an ounce. Now it’s about $950 an ounce.
That’s $150 increase over the past 30 years.
I’m not going to do the math but that is a very poor earnings over 30 years.
So why do people still think gold is a good investment?
gold is not always used to make money on the stock market. It is more of a safe place to put your money for the exact reason you said. It has always been high and you are almost guaranteed to get what you put into it back. or more…
the gold might have gone up only $150 over the past 30 years, but the value still goes up.
If you invest and keep if for a long amount of time the value gets higher and higher
Hi James,
Well firstly, our money was used to be backed by GOLD. Remember, gold used to be our “currency” or money in the past. Therefore, it is like a “stored value”.
And I have to say $150 increase is terrible because if we put inflation into consideration and compare it to the real value in 1970s it is a big huge difference. This shows that the US currency has lost much of its value.
Investors generally buy gold for two main reasons: to financially gain from increasing gold prices, and/or as a hedge or safe haven against any economic, political, social or currency-based crises. Because no matter what, gold can be traded for cash again. Of course, if they really do right now, it’s obvious that they are making a lost instead.
Gold is a poor investment strategy. Gold has only doubled in price since 1890 when you factor in inflation. If you love your kids, don’t invest in gold.
You are half right in your deduction.
To understand why gold has been, and will
continue to be a store of value, world-wide,
if you held $800 in cash, instead of gold,
over the past 30 years, what is the current
value of that $800 in terms of what is can
purchase?
While under your supposition gold has “only”
increased by $150, the value of a “dollar”
is maybe about a third, compared to 30 years
ago.
It is not a comparison of apples and oranges,
but gold and dollars.
Over the last several centuries, gold has been
a consistent winner, but stick with your math,
if it makes more cents.
GOLD is tangible
you can hold it feel it so the worth is always there
however i have seen gold lose value also
it is said buy gold when you think inflation will rise
frankly i think 950 an ounce is 50% over real value
but if the world collapses people will always take gold over currency
If you have invested heavily in gold, you have to persuade others that it is a great investment, so that you can sell it for a profit.
Gold holdings are often sold off when the market tanks, because investors in gold are often in margin to the max and have to bail. Once that is over, some further investors will move to security of gold. Well, gold may be a great investment at 800/ounce and a foolish investment at 1100. But this is entirely a speculation about what other investors, and particularly large holders of gold, will do.
Gold certificates are less safe than a government insured deposit. The issuer of the certificate may be unable to return your gold on request, or ever.
Owning bullion or coin can put you at risk if your bank vault is cracked, or your mattress is flipped.
Gold has not been a stellar performer over the years. There have been times when big money has been made followed by long periods when the results have been negative. Gold does not pay interest or dividends.
While there is a rush to gold in progress, it can be very tempting. But gold is ot a buy and hold investment. It is pure speculation. Buy only when it is way down and starting a climb. Sell well before the target price that sellers are talking about.
Gold is a good investment because it’s value will only increase as the world’s supply is all mined. Also Golds worth unlike cash will not fluctuate, for example the Canadian dollar may only be worth .98 cents in the U.S whereas gold will be $800 an oz U.S regardless of the exchange rate.
This data is taken from the book “Stocks For The Long Run” by Jeremy Siegel. It is an outstanding book.
Key Data Findings: annual real returns. These are the average annual returns for several types of investments (ADJUSTED FOR INFLATION)
Range of years and returns
1871-2001 Stocks 6.8% per year; Gold -0.1%; Bonds 2.8%
1946-2005 Stocks 10.0% per year; Gold -2.7%; Bonds -1.2%
1966-1981 Stocks -0.4% per year; Gold 8.8%; Bonds 3.9%
1982-2001 Stocks 10.5% per year; Gold -4.8%; Bonds 8.5%
Gold rarely performs well.
Gold is not actually an investment as such. It is more or less a hedge. A hedge against the possibility of a currency becoming worthless. As the possibility of that happening, the price of gold rises to compensate. And of course as the currency does become more worthless, the value of gold in that currency does increase.
Most of the answers here are right. Gold lost its glaring as an investment . After the banking system introduced the paper money gold became a ‘psychological’ store value in times of economical depression, but as metal only in a few manufacturing and jewelry applications is used.