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.

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.

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