- Question
- Is gold a good investment?
- Position1 of 3›
- No, gold is a terrible investment
- Argument‹4 of 4
Gold produces no dividends or yield and does not contribute to economic growth
Buying gold is the oldest kind of investing activity and the one about which opinions are most polarized. Unlike bonds which pay a coupon, or stocks which pay a dividend, gold has no yield. It can never return any coupon or dividends to an investor. Gold produces no dividends or yield.
The argument
The reason why gold cannot be an investment is that it belongs to a class of investments that will never produce anything. Any growth in its value depends entirely on the belief that someone else will pay more for it eventually. Gold is an unproductive asset. Unlike shares or bonds or deposits, money that you invest in it does not contribute to any kind of economic growth. A pile of gold will stay the same pile of gold no matter how much time passes. An equivalent amount of money deployed in a business or any other productive economic activity will generate actual wealth and will grow larger in a very fundamental way. The only use of gold is some industrial applications but those are satisfied by just a small part of its production and this demand plays no role in its price. The value of gold has always been driven by the fear that other asset classes will lose value. The final reason investing in gold simply isn't a wise idea is its extreme inefficiency. Since it is a physical asset that people have a tendency to hoard, there are storage costs, and often security costs as malcontents have a tendency to steal it. Gold cannot be a good investment.
Premises
Counter-arguments
Gold makes sense only for those who have no access to or trust in the financial system. Gold is best viewed as an alternate currency. One must remember how during the demonetization, there were stories of housewives who secretly squirreled away large amounts of cash. There was even one who had kept more than Rs 10 lakh safe from a do-nothing husband. That’s the kind of person who could have done better with gold instead of cash. It would have maintained value better than cash, and as it turned out, would have been safe from being demonetized. This is an extension of the "bad times" reason for keeping gold. In the last 100 years, many parts of the world have undergone some kind of an upheaval that has led to a breakdown of society and institutions. In these circumstances, physical gold is a currency that can survive when paper currencies do not. It’s essentially a currency which is somewhat better, in some ways, than modern currencies.
Rejecting the premises
[Rejecting P1] Producing no yield makes gold a different kind of holding, not a bad one. On the counter's own framing it functions as an alternate currency, and a currency is not judged by whether it pays a dividend — cash held for the same purpose produces nothing either, and the premise's standard would condemn it equally. [Rejecting P2] Storage and security costs are real, but the premise sets them against zero rather than against the risks of the alternatives. The case the counter makes rests on periods when institutions or paper currencies failed, a scenario the premise never weighs. The claim that industrial demand "plays no role" in the price is also asserted rather than shown.