As gold prices continue to set new highs, I receive a lot of emails from readers stating that I was wrong when I said gold is a bad investment. I never said gold prices won’t increase, just that there is not a fundamental method of valuing gold and therefore I do not invest in it. A few years later there still is no method to value gold and although gold prices have increased dramatically, I still do not own any in my portfolio. Obviously, there is nothing wrong with investing in gold, call me old school, but I like investing based on fundamentals and reasonable valuation. Can I predict the markets? No. Do I have a 100% track record? No. But this helps me sleep better at night and we all know that when it comes to investing emotions are an important factor. Having said this, here is a neat visual provided by CaxtonFX.
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You’re right. There is no way to fundamentally value gold and it is a very emotional investment. I don’t see anyone trading pieces of gold for tangible things anytime soon.
I believe in value investing, but I am guilty of holding a small portion of metals/mining investments that profit off the price of gold. It’s hard to argue with the return on investment, so why not profit a little from it?
How do you value shares of Apple? I suppose by looking at cash flows, profit margins, etc. The same could be said of gold miners. Their “product” is simply gold instead of an iPad. Is there a fundamental way to evaluate an iPad and not gold? Why should the comparison be different? Seems to me that supply and demand for the product, cost of production, profit margins, competition, and many other factors go into that calculation. Then decisions are made accordingly.
Sorry to hear about your call on gold.
I accept you get cash-flow from other assets, but these cash-flows can quickly dry up in a crisis, which radically changes the valuation metric.
Investment in gold is good now when it’s price have significantly dropped. Best time to invest in it so that you get good return when it will reach it’s heights again.
Gold has a distinct advantage. Always offering a push forward for a purchase and a certain comparative advantage over rest other investments. My emotions go for its complete shine, and I’m glad my portfolio carries it.