The recent hype about bullion and its rise to $1000/ounce has investors wondering if buying gold as an investment is a good idea. Gold bugs argue that the price of gold can rise to $2000/ounce easily so there is room for growth and buying gold as an investment can be a great bet, although this may be true I am not big on gold as an investment. Wonder why? Here are 3 reasons why I don’t consider buying Gold bullion as a good investment.
Bullion
1. Can not Value it.
There really is no logical value to gold, when purchasing stocks you can look at the companies’ earnings, P/E ratios, payout ratios, etc. There is no way one can logical attach a value to gold, gold just sits there doing nothing. Apparently gold bugs use a rule of thumb; an ounce of gold should equal a high-quality men’s suit. The most expensive suit I own cost me $850, I guess gold is over-valued for me at its current price.
2. No Income
If you have been following me for a while you are aware that I like income from my investments. I like companies that pay their shareholders healthy dividends and bonds with good yields. Although I don’t need the income from these investments, I reinvest them and enjoy a stable growth over time. Unlike stocks and bonds there is no income from bullion, there is no dividends or interest paid out.
3. Costs to Keep
Not only doesn’t gold provide an income stream, but it actually costs you money to keep. If you own bullion you are likely to pay safekeeping fees to your institution to store your gold. Unless you want to keep it at home; which is not the smartest thing to do.
Investors might be better off buying gold ETFs over the physical bullion. I’d rather stick with my dividend paying stocks and funds; at least there is an income stream.
What about you? Why do you like (or don’t like) gold? Is there a Gold bubble being formed?
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Article by Ray
Ray is an ex-financial adviser and the founder of Financial Highway. Currently working in the financial industry and working towards completing his Chartered Financial Analyst, CFA, designation.
Ray has written 271 articles.
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{ 17 comments… read them below or add one }
What about inflation… and more importantly, the threat of hyperinflation. It can be prudent to have some tangible assets as the dollar loses it’s value during periods of high inflation.
Yes in the past gold would have been pretty much the only option, but now we have inflation linked bonds and notes, TIPS…..etc…they will do the job just as good if not better. I think unless there is some kind of disaster (where things just fall apart and currencies are worthless) gold isnt really attractive to me as an investor.
Perhaps not so much as an investor, but as a preserver. Besides, the current spending trends and plans of the administration could easily qualify as a “disaster”.
All that said, I’ve yet to take the plunge into gold as I’m busing funding 401ks/Iras/savings. But I really need to re-evaluate.
Never even heard of it before so thanks for the heads up. Seems kind of risky to begin with.
Gold only has value to it’s holders. That’s why I don’t like it as an investment.
If hyperinflation does occur, I would rather hold commodities that people will actually need to have in order to survive: corn, sugar, oil, copper, and of course, oil. These commodities will adjust their prices accordingly if inflation does its thing.
ETFs for Gold contain many other “gold” type derivatives e.g. gold mining companies, processing companies, holding companies, options. They are not typically a true replacement for bullion. Don’t get me wrong I don’t want to house gold blocks in some storage facility in Australia or hide them around my house, but an investor should not conclude that the two are equivalent. Gold ETFs are good for riding a gold wave up and provide the liquidity that physical gold cannot, but you trade stability of physical assets for the safety of liquidity.
Digital gold currency, or DGC, is an electronic form of money valued in terms of gold rather than a currency. It takes the form of a savings-like account through which you can buy, store, and sell your gold via the Internet in any quantity at anytime from anywhere. You make a deposit that is converted into gold and credited to your account. It’s convenient, and the buy/sell commissions and storage costs are low.
There are several players in this market, but the leader is GoldMoney.
I’ve used GoldMoney for a few years – ask me about it if you like. Don’t currently own bullion. Have never heard the line about the expensive suit;) You bring up a good point about it being hard to value…. one counter position to that, though, is that there is a finite supply to it, so there’s a natural ceiling on the amount of gold in existence. So that at least puts some floor on it. (Sorry for the mixed metaphor!:)
I personally don’t think that a gold bubble can be formed. Unlike the dot-com bubble, gold is limited/scarce and you can’t keep minting them forever. And users of gold or the need for gold only keep increasing, like for decorative items and in the electronics industry.
The demands keeps increasing, but the supply does not.
@ t-luck,
Under those criteria, there would not have been an oil bubble. A bubble can form for any purchasable object as long as their is high demand and enough currency to sustain the rapid increase in price.
The fact that people even value gold is kind of interesting. At one time it was tulips. Think about it… the only reason things are ever valued as they are is because of perception of worth.
That is how all currencies work.
I cannot for the life of me figure out why anyone would ever consider gold as an investment. Not only for the excellent reasons pointed out above, but also for the fact that gold has absolutely no intrinsic value at all. Unlike just about every other commodity, you cant eat it, use it for fuel, use it for shelter, or use it for pretty much anything besides making trinkets to hang around you neck. It has such a limited commercial use other than for decorative purposes that its almost commercially worthless. Those who invest in it aren’t much different than cavemen who coveted and collected shiny rocks.
Wow, I can’t believe some of these comments. The Value of gold, when priced in U.S. Dollars is going up because the DOLLAR is losing it’s value. That’s THE problem. Investing in gold simply protects you from inflation of a weaker dollar. Every investor should be invested in some gold, silver or other precious metals. Someone above said that gold has no intrinsic value? What the hell? Dollar bills have no intrinsic value, or else toilet paper does. Gold and silver will always intrinsically be worth something and has been a store of value for thousands of years. To suggest otherwise is seriously ignorant.
This article is ignorant. The reasons to buy gold as a hedge against a falling currency make complete sense …also keep in mind that the statistics used to figure inflation (Consumer Price Index) in the States is designed to yield a report that will always be on the extreme low side.. The statistical methods used for calculating GDP are always inflated estimates that figure in all this extra money that really does not exist… You might benefit from the You tube video Chrismartenson.com…crash course on economics. Your all in for a huge wake up call…as the economy is in way worse shape than you realize… Printing money always leads to inflation…all fiat currencies always return to zero…know your history…
800 dollar suit? This man has no class. History shows us most suits were tailor made for the man wearing them. try $1,500 – $6,000.
I buy gold bullion simply because gold is money. Done.
Bills are currencies.
great invest. buy warehouse and store up on can goods. That will appreciate and you can eat it.
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