Not All That Glitters Is Worth Owning, Especially Gold

From Investopedia, by Michael Kramer

If you have an ounce of gold today, how much gold will you have in 40 years? It’s no riddle: you’ll have an ounce of gold. Gold doesn’t grow, it doesn’t pay dividends and it doesn’t split. Gold just sits in a vault and takes up space, and depending on how much you have, it costs you money to store, insure and possibly transport. Why bother investing in gold? Good question, I haven’t the slightest clue.

Gold makes beautiful jewelry and super coins for collectors. Gold doesn’t even have as many industrial uses as some of its fellow precious metals like silver, platinum, and palladium.

Some people own gold because they feel it is a store of value, or if the U.S. Dollar collapses they will be able to buy food or something. Do you own gold bars? Or pellets? The one thing I always wonder about was how you break off a piece of gold to buy a sack of rice. Do you need to carry a scale to weigh it out with? What if you own an ETF that is backed by gold? Good luck collecting on that in the end times. How can you sell an ETF if all the stock exchanges are shut?

Despite all this, gold is up nearly 450% since the late 1970’s. Wow.

Gold Price in US Dollars Chart

Gold Price in US Dollars data by YCharts

Wow, 450%, that’s incredible, isn’t it? It sounds great, but here’s the problem: these gains haven’t even kept up with inflation. We will use the US Personal Consumer Expenditure Index since that seems to be the Fed’s inflation metric of choice.

Gold Price in US Dollars Chart

Gold Price in US Dollars data by YCharts

Oh, my. The PCE is up nearly 770% over the past 40-ish years, while gold is up 450%. So essentially, not only have you not keep up with the pace of inflation, but you were also paying for the storage and insurance of the gold the entire time. But it gets worse. This next part may bum you out. Ready?

Gold Price in US Dollars Chart

Gold Price in US Dollars data by YCharts

I’m sorry to do this, but the S&P 500, despite all of its ups and downs, has not only outperformed gold, but it has actually crushed the yellow metal. Even in the depths of the 2008 financial crisis. If you had bought gold in the late 1970’s, the S&P 500 still was beating gold in 2008.

Everyone has their own opinion about gold. It shouldn’t be viewed as an investment. Collect coins and buy gold jewelry, that’s mine.

Even if the end of days was imminent, ask yourself: who’s going to protect your gold? How are you going to get hands on your gold? How are you going to use to pay for something if it’s in bar form?

Just remember, an item is only worth what someone is willing to pay for it.

Enjoy your gold, I’ll stick with equities.

I forgot, there is one thing that is up even more than the S&P 500 over the past forty years.

Gold Price in US Dollars Chart

Gold Price in US Dollars data by YCharts

But that’s a subject for another day.



Categories: Economy, REAL Money

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