Gold today is as risky as tech stock in 1999 and Miami condos in 2005
Gold: A Bad Investment and Getting Worse
Gold today is as risky as tech stock in 1999 and Miami condos in 2005, and the arguments supporting its Let’s take a look at some of these arguments and how they stand up to a brief reality check.
Myth #1: Gold is an investment
Let’s start with the very basics. I would define an investment as an asset that creates value and income over time. Stocks, bonds, real estate, and even livestock and productive machinery would all qualify. This is in contrast to “speculation,” which is a purchase based purely on the hope of selling at a higher price at some point in the future.
Ben Graham, the mentor of Warren Buffett and father of the investment profession as we know it today, had referred to speculation as the “greater fool” theory. The idea goes, “I know I am a fool to pay such a high price for a stock but I know that a greater fool will come along and pay me an even higher price.”
Graham was speaking of common stocks, but the same argument could be made about Miami condos, Dutch tulip bulbs, or even baseball cards and Beanie Babies. And it certainly applies to gold today.
Speaking of Mr. Buffett, the Oracle of Omaha has had some choice words for the barbarous relic over the years. One of my favorites is an off the cuff remark he made in a recent interview with Ben Stein:
You could take all the gold that’s ever been mined, and it would fill a cube 67 feet in each direction. For what that’s worth at current gold prices, you could buy all — not some — all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?
Gold pays no dividends or interest and produces nothing. It’s an inert metal that you have to pay to store and insure. And yes, your ability to profit from it depends on your being able to sell it to someone else at a higher pric