Why Not Gold?

Gold is an investment which hedges against inflation. The reason is that as more money is printed and put into the economy the less valuable the dollar becomes. If you were able to predict the future and you knew more money would be printed, you could buy $10 worth of gold today and later sell it for $15.

So, the first reason I wouldn't purchase gold is because this investment is purely speculative. The second reason I won't purchase gold is that while I am holding the gold, I cannot make any money off it. A good investor who purchased gold, would open a museum and charge people to look at the gold while holding it. This would be great because he would be making money and have staying power to wait until prices went up.

Now, the situation described above is a simplified explanation of why gold hedges against inflation. However, in reality, other investors also understand that gold hedges against inflation. This should be taken into account when purchasing gold. Because of supply and demand, when you purchase gold as an investment, you are assuming that you know inflation will occur, even more than other investors know inflation will occur, because other investors have already driven up the cost. The third reason I wouldn't purchase gold is because gold is such a common investment that investing in gold is a bet that you know more than other investors.

Past results do not reflect future performance. With investments, it can sometimes be the opposite. For instance, if gold prices have consistently gone up at unbelievable rates for the past ten years, I would probably sell my gold and take a decent profit rather than trying to wait and hit a home run. I would be reminded of the internet bubble and the housing bubble.

In fact, I am going to make a prediction here. I am going to bet that the gold bubble bursts long before investors can profit from their bets that inflation will occur in the future.

So, if past results, do not reflect future performance, then why do I continue to invest in the stock market? Well, when it comes to people, past results definitely reflect future performance. If I had a friend who had trouble staying faithful to his partner, I would bet that he would continue to have the same trouble in future relationships. If I have a friend who has been successful in his career for the past ten years and has continued to grow and develop, I would place a strong bet on him that his career would continue to advance, despite what the public says or the state of the economy. If I had a friend who doubled the revenue of a company for five years straight and was starting a new company, I would place a strong bet on his company that it would double in revenue the first few years. The reason is that the character of people tends to stay the same throughout a person's life.

With the stock market, you can make an educated guest about future earnings. Then, you can do some numbers and see if makes sense to purchase based on your overall portfolio and strategy.

Dedicated to Dave Brubeck.

Support My Mission

1. You can support my mission by donating via my e-mail address (scottizu@gmail.com) and PayPal.

2. You can support the mission of SAGE by donating at http://sagescholars.berkeley.edu/. The UC Berkeley SAGE (Student Achievement Guided by Experience) is a self-funded experiential leadership program that provides education, professional development, mentoring and internships to UC Berkeley students who come from poverty and low income backgrounds.

3. You may also contact me for a free 1-hour consultation to discuss how I can help you.