Gold – Bad Investment: 3 Reasons why I don’t buy Bullion

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

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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Comments

  1. says

    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.

  2. says

    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.

  3. says

    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.

    • Mike says

      You will more than likely lose your 401k/IRA. Let me show you how:

      Best case: Means testing of “entitlements” later in life, such as SS, medicaid, medicare, Obamacare – you’ll have to spend down private money before receiving anything
      Medium case: Ever higher taxes and withdraw penalties as USA goes bankrupt.
      Worse case: Outright confiscation (like Argentina/Brazil) as USA goes bankrupt.
      Physical bullion will be the only money you have left, which is why morons don’t have any.
      If you think this is an “internet conspiracy” I suggest you look up the house/senate hearings on 401k confiscation, etc. I won’t waste time explaining it – but I would not ridicule gold.
      Also – yield /dividends no longer matter, because BHO just doubled the taxes on them.
      Good luck with your 401k/IRA/paper fiat.

      • Banjin Tsuki says

        The Gov is going to start tracking gold purchases thanks to a provision in the Obamacare bill. So gold will also have to be spent down before receiving benefits. Having gold doesn’t help that scenario. Tracked gold can also suffer the same concerns for the IRAs you mentioned.

        • Chad says

          While that may be true ONE DAY, it is not true today. Gold is simply not tracked… yet. If you do your homework through the IRS, you can print out a list of precious metals that ARE tracked. These mostly consist of kilo gold bars, 100oz bars of silver, and other outrageous things that you would find only in a pirates treasure chest. The US government keeps no tabs what so ever of any amount of gold or silver bullion that they created for sale. For instance, you could buy one million ounces of gold American eagles tomorrow through a website, and neither you or the website are required to report your purchase.

  4. says

    Never even heard of it before so thanks for the heads up. Seems kind of risky to begin with.

  5. says

    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.

  6. says

    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.

  7. says

    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.

  8. says

    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!:)

  9. says

    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.

  10. says

    @ 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.

  11. says

    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.

  12. Peter DeGiglio says

    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.

    • Lukas Howard says

      You say it has no value, but your last line of the comment is the exact reason why you are wrong. Gold has ALWAYS had value, and one of the really few elements in which this is true. 10,000 years ago it was considered precious and valueable, 1000 years ago it was precious and valueable, 500 years ago it was STILL precious and valueable… see where I am going with this? There might be no justification for WHY this shiny yellow metal has any value for people and nations, but there is no argument that it always HAS. And I will trust 10,000 years of human civilization trends above 5 years of your “virtual market” trend. Food sources change, energy sources change, trends rise and fall along with the value of their commodity. But gold has always been gold, and has always been sought after as a luxury on the global scale.

  13. says

    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.

  14. Jason says

    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…

  15. Solid Snake says

    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.

    • trey says

      If you are paying $1500-$6000, then not only is class missing but intelligence. It is the absense of class to think that more money makes something better. In many Countries an exceptional suit can be tailored for under $600 that are superior to your $6000 New York or Paris suit in both material and craft, but spend that money ha ha.

  16. Jammy says

    I buy gold bullion simply because gold is money. Done.
    Bills are currencies.

  17. lkyjny says

    great invest. buy warehouse and store up on can goods. That will appreciate and you can eat it.

  18. Fishgalore says

    http://www.kitco.com/charts/livegold.html

    Look at the web link I provided, especially the 10 yr chart. It speaks for itself concerning why gold is NOT only a good investment BUT also a hedge against inflation as some of the smarter commenters above noted.

  19. Robert the Canadian says

    My Grandpa started me my bullion hoard when I was born in 1965. I started with 1 oz of gold and 10 oz of silver. Every year, Christmas and Birthdays he would add to it. Birthdays I got a gold maple leaf, Christmas I got five silver maples.
    My other grandparents gave me cash – which I deposited into my savings account.

    Grandpa would tell me stories about saving gold and silver. About how no one outside the family should ever know how much you have, or where you hide it. He told me the government can’t take it away if they don’t know you have it. He told me the government can’t tax it either. The bank can’t seize it, or put a hold on it, neither can the government.
    He also told me that once your start your “treasure” you will want to grow it. He told me to make sure to never short myself cash..only put what I can afford into bullion. I still use his contact today to buy my bullion…at only 4% over spot.

    THANKS GRANDPA!!

    There’s something odd that happens once you started collecting bullion…you become much more diligent in saving. You just want to add to it, make it grow.

    Over the last 25 years, I have put a little into bullion every paycheck, only $10 to $30. Never too much..just mad money.

    My focus has always been on our INVESTMENTS with companies like investors group, manlife and several others.
    When Manlife collapsed, I lost all 12 years of my investments, $350 per month invested…gone. I was supposed to retire on that. This was the first investment plan I got into at 17 years old.
    I got ripped off twice by “financial advisers” a decade apart…the advice they gave was horrendous. One guy actually ripped us off, forging a stolen check and draining our chequing account. In all fairness…investors group made good on that one. They were very apologetic and cooperative in returning my money stolen by theft. The fact that the investments they suggested NEVER CAME CLOSE TO WHAT I WAS TOLD THEY WOULD RETURN…not so much. Isn’t that a kind of theft?

    1985 to 2011 results to date:
    Investments: 25 years of diligence = 22.4% growth – in total.
    Bullion: 25 years of “playing” at investment = approx. 900% growth at today’s spot prices. (of course that is unrealized…I hold bullion still…I only cash in occasionally. I just dumped a 100 oz bar of silver that cost me $528 to buy. I sold it for $3210.00 last friday)

    Conclusion:
    I would imagine that if I was smarter at investing, I wouldn’t have been taken to the cleaners by the “experts”. I probably would have seen the signs…mutual funds that were swallowed by fees, actually paying less than 1% (but posting 9% gains in the papers). GICs that paid less than the service fee to set them up, savings bonds that ended up paying zero after inflation.

    So my story proves nothing other than perhaps some diversification into the actual bullion might save your butt.
    I know it saved mine. Seriously.

  20. David T says

    Here’s why I strongly recommend that folks buy gold as part of their investment portfolio:

    Go and Google “health care reform act – reporting gold sales to IRS” or something similar – search it however you want to. You will discover that, in the HEALTH CARE reform act, is a hidden little item that requires people to report any purchase of gold above a certain dollar amount to the IRS. No… it won’t be taxed… at least not YET. This part of the law is supposed to go into effect in 2014. Nobody will ever be able to buy gold again without reporting the sale to the government. Here’s what I think will happen: in another 12 to 18 months, this small fact will become more popular and be reported in the press. There will be even MORE of a rush to buy gold before the law goes into effect, driving prices through the roof. Buy now. Prices will go up ahead of this law.
    It will also shift many investors over to palladium or silver (yes you can buy palladium coins) because those won’t yet be among the precious metals required for IRS reporting.
    What I want to know is… what the heck does gold sale reporting to the IRS have to do with a health care reform bill? There is your government at work, sneaking legislation under the radar to take what you’ve earned.
    As far as 401(k), I invest a small amount into it. Don’t put too much in your 401(k)! It’s fine now, but in 20 years, the government will start cutting costs by targeting the “rich” people who have large 401(k) accounts. The government can’t tax that money, but they sure can deny you social security benefits and medicaid. If you have “too much” according to the government, they will adjust your benefits accordingly. It’s called “spreading the wealth.” I truly believe that anyone with more than about $250,000 in their 401(k) will forfeit some part of their social security to offset what the government will label as “excess.” Too many people aren’t saving for retirement, and they will elect people into office who will take that money from YOU one way or another.
    This is another reason to have hard bullion in your safe (or in the bank, or buried somewhere, etc). It’s the one thing the government can’t track… for now.

  21. says

    gold is noy a good investment because its value doesnt go up unless the prices go up

  22. Ryan says

    Good thing I didn’t listen to you.

  23. says

    Why Gold should be in your portfolio. First Reason Greece,Spain, Italy. Second Reason 49 States that are in the US are Broke. What keeps Calif from being the first to go bankrupt is beyond me. Go ahead invest in triple aaa bonds, we all all thought GM was a safe move to!!! I sound gloom and doom but a 30% share of your assets held in gold and silver is a reassuring number to me. Hell I dont mind a 850% on my money since Ive held gold and silver. Silver in my world should be a lot higher then $35 a ounce. the government is constantly changing the rules on holding it on margin. People are buying more on the dips. This I think will expode the price soon. Right now silver should be $90 A ounce. But I`m a regular guy, My gut said buy a little and hold, So Far The experts have been wrong. We will see in the next year who is right.

  24. IQL says

    Oops. I guess you are wrong about gold. Soooo wrong. I am glad I didn’t listen to you. Instead, I was laughing at you. Even after gold’s fall from $1900/oz, it is still outperforming the S&P and DOW and NASDAQ.

    Listen dude. You need to diversify. Everyone needs to own some precious metals, stocks, cash, and possibly even some corporate bonds. Being closed minded to any asset class is foolish. No one can predict the future. So diversify.

    • Gold Baron says

      Oops. You should have listened.

  25. Banjin Tsuki says

    Gold is not an investment, it is a gamble hedge against a potential collapse in the dollar. All you guys saying there is no such thing as a gold bubble or watched your prices go up 900% are exaggerating a bit. Gold prices have only increased 5x not 9x in the last few decades. You would have only realized 5x if you bought low and sold high. Plus you got lucky – gold is even down a bit from the 80s when normalizing to current dollars so you bought low and sold high. I am happy you did, but some people got burned and bought gold in the 80′s…. still haven’t seen that value again. Really, gold is speculative at best.

    Also there is no hedge against inflation with gold or silver. Look at the charts for inflation and gold: they do not trend together. Worse, if we do realize gross inflation no one will care about buying gold when buying food is highest on the list (look up articles on hyperinflation). If you want a hedge against inflation buy I bonds. They are guaranteed to rise with inflation. Sure the government could potentially screw bond holders one day, but if they do that we have a host of other problems.

    Last, the market does correct over time. If you dropped the stocks out of your IRAs in 2008 then you missed the rally back. Granted, the price of stocks haven’t made it all the way back to pre-crash prices, but as of today (4/27/12) gold is 15 percent below its high price of $1900; the Dow only down 14 from its 2008 high… about the same.

    Gold does correct – in two years from 1980 to 1982 gold lost half its value… certainly this can (and is likely to) happen again.

    • Banjin Tsuki says

      So here we are, almost a year after I wrote this first comment. Let’s take a look at what has happened to stocks and gold:

      Stocks – reaching an all new high (according to the DOW). Since April 2012 the market is up 2000 points for a nice 15% jump in price.

      Gold – Down 10% or $178 per oz. If you bought in the fall when gold was near $1900/oz you are down 15%. The question is, of course, with gold-bubble popping where is the real value for gold? Will it stabilize here? Go to $1100? $800? Might be a while before there is a turn for the better.

      My other concern with gold is people tend to invest in gold out of fear (“the sky is falling!”) as opposed to people using gold as a reasonable investment or diversification method. I noticed the gold price in Japan was up 20% last year (much more than other countries) and even up a little this year in spite of major drops everywhere else. I wonder how much of that had to do with the tsunami.

      Just curious, how much gold investment do you think is done out of fear vs planning?

  26. nitesh pala says

    i think gold is best investment. Stock can cheat us. Last 3 years it give us NAGETIVE RETURN. And gold give us 50 % return. I see many case in stock market people lose their total money.Thats why central baks BUY GOLD..!!

  27. says

    Hey there!, quality blog, enjoy the work you do, keep up the awsome work, will be looking at this site out more often!

  28. says

    Hi, amazing blog, admire the work you do, keep up the amzing work, will be looking at this site more often!

  29. Jim says

    I used to be a gold bug but, I’m just waiting for the day when I can get my money back from it.

    Gold is the money of kings and bankers. They have access to markets that the 99% will NOT have access to. Try and sell your gold locally. You’re lucky to get any interested buyers. People just don’t have any cash to buy gold with, let alone hope that they can unload on the next sucker for a higher price. Gold is the ultimate Greater Fool Theory game.

    You think you can pay your property and other taxes with gold and silver? Municipalities are compelled to only accept payment in whatever the Feds accept. As long as taxes can only be paid in FRN’s, then gold is a Greater Fool play. Try and pay your mortgage or rent with gold and silver. Again, you can’t. I’ve brought up the scenario with the county attorney about unusual economic duress and whether gold and silver would be accepted and he told as I just mentioned.

    Yep, I’m getting out on the next QE bubble.

  30. nick says

    I’m buying all the gold I can get my hands on. The price of gold will be 4,000 an ounce in my lifetime. I’m 26. The man with the gold is king..

  31. JFG says

    I acknowledge that gold might not be traded when SHTF. However, let’s say you survive SHTF and find a new civilization. What assets are you going to have? A small bug out bag of food, water, and guns is not worth much AFTER you survive. Gold, on the other hand, has a high value to weight ratio. A small case of 50 American Gold Eagles is worth $89,545 metal value as of 10/4/2012 at 4:17 pm Eastern time zone.

  32. Ronan says

    Gold is by far a better investment. Stocks and shares, unless you have loads, is not a great way to add to your income. Just like oil, gold is becoming harder to find and yet is still in huge demand. You may not get interest from gold bars however if the surge in price from gold continues to go up, as it is, then you will double your gold investment. A year to two years ago gold was fetching large amounts of money. Silver is also a good investment. People are trading in silver more now than they did before. Palladium is an even better investment as it is becoming harder to find. Stocks and shares crash and burn. You will always have gold, silver and diamonds. Wade out any downfall and you will reap rewards.

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