Why I will probably never buy gold
Important: I am not an economist or an investment advisor. Everything you read here is simply opinion based on my limited knowledge and (hopefully) a little common sense.
Lately, I have been hearing all kinds of advertisements for gold. Whenever my six year old sees those “cash for gold” commercials, she tells me to sell all our gold for money. The problem is that we have almost no gold . . . jewelry or otherwise and that does not look like it will change in the near future.
The other kind of gold advertisement is the kind that pushes gold as a good investment in poor economic times. An investment in gold is a “hedge against the falling dollar” or a way to “combat inflation”. I often see and hear supposedly credible pundits and celebrities pushing gold on television and radio.
But I do not buy their pitch completely. Though I share much of the negative outlook on the economy, I am hesitant to purchase gold as a way to protect my family financially for several reasons:
Buying gold is still an investment
If I purchased gold, I would only purchase real, physical gold, also known as direct ownership. I would not invest in gold by means of indirect ownership through certificates, accounts, spread betting, derivatives, shares or any method by which I do not have the gold in hand or safety deposit box. Indirect ownership seems to come with the same risks that all other investments bring. I am not against investing, but the point of buying gold is to hedge against the worst case scenario. If the worst were to happen, all investments will plummet in value.
Again, I am not an investment guy, but the reality is that gold has not really performed well as an investment. The price of goal has only averaged about a 1 percent increase every year. However, not that many people do not buy gold as an investment, but rather as a commodity that rarely, even in the worst of times, loses value.
I simply cannot afford to put any money into gold. The way the price has jumped up recently would probably prevent me from owning even an ounce.
This is the bottom line for me. Gold has no real intrinsic value. Gold cannot be eaten, it cannot grow food, it will not cure disease, it cannot provide transportation by itself. Common sense says that if inflation goes through the roof and life becomes a daily hand-to-mouth struggle, I believe that barter will become the preferred currency and all the gold in the world will not feed your family.
Money has value because the person to whom you give it is confident that he can exchange that same currency for necessary items. Gold holds the same type of value. If things go really bad and your family is able to grow or hunt food, you will survive. Even if people have extra food, they will be hesitant to exchange it for a heavy, useless lump that cannot be eaten or provide any practical function.
Like I said, I am not an economist or an investment expert. I am not completely sure that my thoughts on this subject are correct. What do you think?
Article by Stew