“With an asset like gold, for example, you know, basically gold is a way of going long on fear, and it’s been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in the year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money. But the gold itself doesn’t produce anything” – Warren Buffett
Gold should be considered more of a hedge against general inflation, a store of buying power, a hedge directly against a fiat currency, or a trading vehicle than what is considered a traditional investment. A good investment increases in price through growing in value whether it is a growing underlying business, growing dividend, or growing yield. Gold does not contain any of these traditional features of a good investment which is why stocks remain the most popular traditional investment based on their potential for growth.
Between January 1971 and December 2019, gold had average annual returns of 10.61%.
The long-term nominal return on gold that is not inflation-adjusted, the actual annualized return, compound annual growth rate; (CAGR) from 1972 to 2020 was 7.9% for gold.
Is gold a good investment? That depends on what you are trying to accomplish.
- Gold can be a great thing to buy if you want to convert your fiat currency into assets to preserve the value of your capital if you are concerned about your national currency due to political risks.
- Gold can be a great place to invest money to retain your buying power over the long term versus leaving money in a savings account.
- Gold can be a part of a portfolio investment diversification plan for some exposure to commodities.
- The gold exchange traded fund $GLD can be on your watchlist for diversification as one part of a complete stock trading system.
- Gold futures $GC can be one part of a complete trend following trading system using futures.
- Rare gold coins can diversify your investments into a new market.
- Gold can be a safe haven during times of great fear as it is the ultimate flight to safety when people fear a bear market in equities, high inflation, or a bad economic environment.
- An indirect way to invest in gold is to buy leading gold mining stocks as that is an actual investment in a company that has its earnings correlated to the gold price as well as its own operations.
- Gold jewelry is one way to wear and enjoy your investment in gold.
- Gold bullion is a way to invest in physical gold but it must be stored in the most secure location possible as you then have theft risk of your asset after you take personal possession of it.
“Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” – Warren Buffett