What Gold is Good For

[mishalak]

Do not buy gold as an investment. Investments are investments, buy something that produces money in your local currency, especially rental real estate and shares of companies that produce dividends. Gold is a mostly stable repository of value, but it never increases in value. Gold is not productive, it just sits there and needs to be protected. Certainly it can be a way to avoid losing massive amounts to inflation, but along with the cost of protecting it there is also the costs associated with buying or selling it because usually gold and other precious metals cannot be spent directly on goods or services. Yes, gold does go up and down in value relative to currencies as people get more or less nervous about the stability of those currencies. However unless inflation significantly more than 5% and no productive investment is safe gold isn't going to make money for someone unless he plays the speculation and trading game very well. Why? Because with every transation there are losses.

Now this isn't to say if you're doing well enough you shouldn't buy precious metals, but don't be putting all your money into that because people start pointing out that the US is a massive debtor and so on. Yes unless America gets its act together eventually the currency will fall. When/if that happens people who are owed money in US currency that is not adjusted for inflation will lose value while people who owe debts in US currency will be able to pay off those debts more easily.

Comments

[orangemike.livejournal.com]

It's a cynical bet on complete degradation of the currency. (Of course, for some people, it's almost a religion and/or a fetish; but then, what isn't?)

[mishalak.livejournal.com]

There have always been gold bugs. And you know, I've never heard of any of them becoming rich. Ever. The people who make money on gold are the ones who sell stuff to the gold bugs.