Why You Should Never Invest In Gold
So you’re thinking about investing in gold, huh? Shiny, universally admired, and seemingly impervious to economic downturns – it’s easy to understand why folks are drawn to this glittering metal.
Investing in gold is often touted as a hedge against inflation, a disaster-proof investment, and a ticket to wealth beyond our wildest dreams. Sounds fantastic, doesn’t it?
Well, hold onto your gold rush dreams just a moment! Despite its luster, the golden road isn’t always as promising as it seems. Let’s delve a bit deeper into the reasons why investing in gold might not be the golden goose you’re hoping for.
12 reasons why you shouldn’t invest in gold
1. Gold doesn’t produce income
First things first, gold is a non-productive asset. Unlike stocks or bonds, it doesn’t pay interest or dividends. It just sits there in your safe or a deposit box, looking all shiny and pretty.
Sure, you might get lucky and sell at a higher price than you bought, but relying on price appreciation alone is a risky business.
2. It’s not a great inflation hedge
Many people think of gold as the ultimate hedge against inflation. But, if we look at historical data, it’s a bit of a mixed bag. Sometimes, gold prices rise when inflation is high; other times, they don’t.
If you’re looking for an inflation hedge, you might be better off with Treasury Inflation-Protected Securities (TIPS) or real estate.
What are TIPS? Learn more about them here.
3. Gold prices are highly volatile
Have you ever watched the gold market? Talk about a roller coaster ride. Gold prices can swing wildly due to economic, political events, or even changes in investor sentiment. You might argue that stocks are also volatile, but remember, they typically generate income over time. Gold doesn’t.
4. It doesn’t perform well in good times
Gold often shines brightest during economic uncertainty. But when the economy is booming? Not so much.
During economic growth periods, investors usually prefer income-producing assets, causing gold prices to stagnate or even decline. If you’re playing the long game, there may be better options.
5. The cost of ownership can be high
Gold, in its purest form, is far from cheap. At time of writing, it’s trading at nearly two thousand dollars per ounce! But the high purchase price is just the tip of the golden iceberg.
There’s more to owning gold than just buying it. You have to consider storage costs, insurance, and transaction fees. And if you opt for gold ETFs instead of physical gold, there are management fees to consider as well.
If you’ve ever tried to buy gold online, you’ll know that it’s not exactly straightforward. You usually have to pay for insured delivery, and there’s always the possibility that it goes “missing” during transit.
Suddenly, that shiny investment doesn’t look quite as bright, does it?
6. Gold doesn’t benefit from technological advancement
The tech sector is a prime driver of economic growth, and stocks in this sector have the potential to deliver significant returns. Gold, however, remains unaffected by technological progress. It doesn’t matter how advanced our gadgets get; gold will still just be a lump of metal.
7. It’s susceptible to speculative bubbles
When fear grips the markets, investors often flock to gold, driving up prices. But this kind of panic-driven buying can create speculative bubbles that eventually burst, leaving latecomers with significant losses. Not exactly a comforting thought.
8. Gold isn’t eco-friendly
If you’re environmentally conscious, gold mining’s impact might give you pause. It’s a process that can lead to deforestation, loss of biodiversity, and contamination of water sources. We all like a little sparkle, but maybe not at Mother Nature’s expense.
9. Transportation and storage
Gold may not be as bulky as other commodities, but don’t let its compact size fool you. Transporting gold isn’t like shipping a book from Amazon. It’s valuable and targeted by thieves, meaning it requires secure transport – and that’s not cheap or easy.
Then, once you’ve got it, where do you keep it? In a drawer at home, ripe for the picking? Probably not the best idea. A safety deposit box at the bank or a professional vault is more secure, but these options come with their own set of problems and risks. For example, what happens if the bank goes under or if there’s a burglary?
10. Liquidating is a real hassle
When it comes to investing, one often overlooked factor is the ease of selling the asset when the time comes. With stocks or ETFs, you can sell your holdings in a matter of clicks.
Gold, on the other hand, is a different beast. Finding a buyer isn’t always easy, and if you’re in a hurry, you may have to accept a price below market value.
Plus, there’s the matter of transporting the gold to the buyer – remember point number 9? In other words, liquidating gold can be a proper headache.
11. Gold will never again become a currency
During times of intense financial crisis, people fantasize about a return to the gold standard. Ah, the good old days, right?
Well, let’s just say there’s a reason we moved away from it. A gold standard is inflexible and can exacerbate economic downturns.
Most economists agree that returning to a gold standard is about as likely as hitching a ride on a unicorn. All this to say, don’t count on your gold coins becoming the new dollar bills.
12. Despite the claims, gold isn’t in short supply
Gold may seem like a finite resource, but believe it or not, it’s not as scarce as some make it out to be. The World Gold Council estimates that over 190,000 tonnes of gold have been mined throughout human history, and we still have about 50,000 tonnes of proven reserves left.
But here’s the kicker – gold is practically indestructible and almost all gold ever mined is still around in some form.
Contrary to the idea that we’re running out, we’re actually pretty good at finding more of it. So, despite the scaremongering, gold scarcity is more myth than reality. Don’t get me wrong, it’s still relatively rare, but it’s not like we’re about to run out. And even if we did, we couldn’t exactly use it to make sandwiches, could we?
Final thoughts
Gold, huh? It’s got that glimmer, that allure, that… complete lack of dividends. Remember, investing in gold is a bit like dating a movie star: it seems glamorous, until you realize they don’t cook, can be high maintenance, and their value may fluctuate wildly based on the whims of the public.
Smart investing involves weighing the pros and cons of every asset. Yes, diversification is the spice of life, but so is making smart choices.
Here’s a thought: instead of betting the farm on gold, why not sprinkle your investment magic across various asset classes? That way, you’re not stuck betting on one horse – because trust me, betting on one horse, especially one that’s as temperamental as our shiny friend gold, is risky business.
Happy investing!