Is gold a good investment?

Gold is a good investment when bonds have negative yields

Question: Is gold a good investment?
Position‹3 of 3: Gold is neither good nor bad, it depends on the circumstances
Argument‹2 of 2: Gold is a good investment when bonds have negative yields

Gold does well when real rates are negative. Given inflation is positive today and real rates are negative in nominal and absolute terms, gold will do very well. Unsurprisingly, gold prices are highly correlated to the percentage of government bonds trading with negative yields.

The argument

Gold holds a stable monetary position in the world as one of the most valuable natural resources, and there is no lack of demand for it. Because of that value, people like to use gold as a placeholder or substitute for cash — which is the feature the whole argument turns on. An asset treated as a substitute for money is not valued for what it produces, since it produces nothing; it is valued for holding its worth when other things do not. Governments treat it the same way. Many countries maintain gold reserves: America has Fort Knox, the UK has the Bank of England. States holding gold alongside their currencies are making the same judgement as the individual saver, and on a scale that keeps a floor under demand regardless of what any particular market is doing. This is why the case for gold is conditional rather than absolute. If government bond trading suffers, that only increases the value of gold, because an economic decline increases its worth rather than diminishing it. The relationship is inverse: when the returns available from conventional holdings fall away, an asset that simply holds its value becomes more attractive by comparison, without having changed at all. Gold is therefore a good investment in precisely the circumstances that make other investments bad ones — when the economy suffers, the gold rate is high. What that buys an investor is insurance rather than growth. Gold allows people to keep a monetary safety net for the case where the economy takes a hit or their other investments fail, which is a different purpose from seeking a return. Given how gold is regarded in our world, it will always have worth, and that reliability is the service it provides.

Premises

[P1]Gold holds a stable monetary position and constant demand—used as a substitute for cash and held in reserve by governments such as the US and UK—so it retains its worth. [P2] When government bond trading suffers, an economic decline only increases gold's value, making it a monetary safety net precisely when the economy takes a hit or other investments fail. [C] Therefore gold is a good investment under the right circumstances—particularly when bonds have negative yields—so whether it is good depends on the situation.

Counter-arguments

Many governments have gold reserves at their disposal due to it having monetary value and strength even when the countries own monetary system might be weak. However, gold is an antiquated resource. Its value is completely derived from historical traditions and social constructs. Practically, gold holds no intrinsic use, and its value is derived solely from its rarity. Furthermore, it does not contribute to economic growth, so personal investment in gold does not help the economy.

Rejecting the premises

[Rejecting P1] Central-bank reserves and use as a cash substitute show that gold is widely held, not that holding it returns anything; a stable monetary position is compatible with long stretches of falling real value. [Rejecting P2] "An economic decline will only increase its worth" is too strong — gold has fallen during downturns when investors sell liquid assets to cover losses elsewhere — and the premise never reaches the negative-yield condition named in the title, which is a claim about the opportunity cost of holding a non-yielding asset rather than about crises in general.