Why gold is a terrible investment

A while back, I somehow became interested in gold. I’d seen a few references to people investing in gold—physically buying gold coins. The idea is that gold holds its value well, and has been used as currency for millennia. So it sees use as a hedge against the dollar—when people worry about the dollar losing value, they buy gold. Seems pretty reasonable!

But as I started to look into it, my doubts grew. I’m now of the opinion that gold is a terrible investment, especially for the claimed purposes. Here’s why.

First, I’ve seen it said that gold holds its value very well, and is very stable. Here is a graph, from Kitco.com, showing the price of gold from 1995 to today:

If you’d have invested around the turn of the century (I love that “turn of the century” now means 1999-2000), you’d have done very well for yourself. But would you want to invest now? It’s true that past performance doesn’t indicate future performance, but this isn’t exactly the type of graph that makes me see a huge opportunity. But my point isn’t to argue that gold has “peaked,” or anything of the sort. My point is just that if someone tells you that gold is a very stable investment, they are lying through their teeth. In a 10-year period, gold went from below $400/ounce to over $1800/ounce. And since 2011, it’s lost about $500/ounce in value. Here is how to invest 401k in gold with the help of experts and get the right returns.

Gold also seems to attract some nutty conspiracy theories and strange beliefs. A lot of place sell pre-1933 gold. I spent a while trying to figure out why. And, well, here’s why: back in 1933, the government started seizing gold coins for a brief period of history. Some worry that the government will do this again, but believe that gold coins from before 1933 are exempt. This belief is, of course, wildly inaccurate. The linked article does a good job factually debunking it. (For those less inclined to care about facts, but fond of conspiracy theories, I might argue this—if the government were to overstep its authority and confiscate privately-owned gold in the modern era, what makes you think that they would honor a misinterpreted rule from the 60s and leave your pre-1933 gold untouched?)

I should disclaim that I’m not an investment expert, and that I’m not really trying to argue that savvy investors could never see gold as a good investment. If you’re a financial wizard and want to put some money in gold, by all means give it a try. What I am saying is that, if you’re a senior citizen who saw the commercial I saw on TV about how the dollar is going to lose its value and your safest bet is to buy gold, you are being had.

But when you see ads on TV trying to sell you gold, you might consider their motives. If I believed gold was going to keep climbing in value, I’d be buying up all the gold I could get. But suppose you were sitting on a lot of gold and saw the graph I linked to above. Wouldn’t it seem really tempting to try to convince people that the dollar was going to fall and that they’d better buy all the gold you were selling right away? You’d be rid of your rapidly-depreciating gold, and left with plenty of cash in a time when the stock market is hitting record highs.

In conclusion, please do not buy gold without doing a lot of due diligence. Maybe gold is a good investment in certain situations, and maybe gold was a good investment a decade ago. But that doesn’t mean that gold is a good investment for you, today.

Why airplanes don’t fly in straight lines…

…and other information about airplane engine failures.

I’ve sometimes wondered why airplanes don’t seem to fly in straight lines. I once saw someone give a seemingly-simple explanation: the Earth is round. While that fact is true, it doesn’t really explain it. When I flew from New York to Hong Kong, “curvature of the Earth” doesn’t explain why we practically flew through the arctic circle. It was certainly not the most efficient path.

I suspect there are many components to the answer, and perhaps the earth’s curvature factors in a bit. I also suspect that weather and wind factor in. But there’s one big, glaring reason that I’ve found: a twin-engine airplane must, at all times, be able to reach an airport on a single engine within a certain period of time. Early on, the limit was 60 minutes, though that figure has gone up over time.

The idea was simple—with only two engines, if one fails, you want to be able to land pretty quickly. So the FAA set a limit of 60 minutes. This surely had all sorts of positive safety implications, but it was also inconvenient, and led to some circuitous routes, plus some areas just not being possible to reach in a twin-engine plane. Over time, apparently, evidence allowed these rules to be relaxed. For one, it turns out that a plane is capable of flying just fine on a single engine.

For example, here is a rather chilling video of an airplane (a Boeing 757) ingesting a bird into one of its engines during takeoff, causing the engine to spew flames until it is shut down:

It continues its takeoff normally, declares an emergency, and lands normally a few minutes later. If you ignore the flames during takeoff and the inspection by the fire department upon landing, it looks entirely normal. Also fascinating to me is how the pilot seems entirely calm during the whole situation, and how half of the radio traffic is just about how they’ll be able to exit the runway normally so other flights shouldn’t need to divert, and how they plan to taxi back.

While a video of an airplane engine spewing fire might not inspire a lot of confidence, what’s intriguing to me is that the plane flew just fine with only one engine operating. It didn’t begin flying sideways or have difficulty landing as I might have naively expected. Hence the initial justification of the 60-minute rule—if an engine failed mid-flight, pilots would be able to safely fly to the nearest airport with only one engine.

Over time, apparently, evidence showed that spontaneous failure of an engine mid-flight was extremely uncommon, and that the 60-minute limit was excessively conservative and made many flights impractical. Over time, allowances of up to four hours have been granted, and newer planes are being certified for times in excess of five hours. But many older planes are still limited by shorter times, hence the seemingly-odd routes they take—they need to stay within range of airports.