Who doesn’t like gold? It’s been highly sought after for thousands of years, having first been used around the year 700 BC, when the Roman Empire was just starting to become a force and the Cleveland Browns last won an NFL championship.
Aspiring athletes for generations have had one mantra: go for the gold! Gold is beautiful; there’s a reason the Olympics doesn’t award the winning athlete or team a Copper Medal or Manganese Medal. Never having been confused with or accused of being an athlete, I haven’t ever been able to acquire gold by having someone put it around my neck while standing on a podium.
It seems a lot of people are jumping on the gold bandwagon these days, with daily prices at or near record highs. Usually when the price of gold spikes upwards it means one of two things (or both): there is some sort of crisis happening in the world (unfortunately we can check that box at the moment), and/or the value of the US Dollar is dropping significantly (the Dollar is weaker against a few currencies currently, but not enough for the price spikes we’ve been seeing lately). So it seems that people are flocking to the “safety” they see in gold in difficult times.
I’m not so sure this is a great idea, and I certainly don’t recommend buying it for that particular reason. And when I hear people say they are considering “investing” in gold, I always point out that I don’t consider it to be an investment, but rather a speculation (more on this distinction in future posts). Speculating that the price of gold will go up (or down) means this is what you are really doing: gambling.
To separate a speculation (or gamble) from an investment, I believe 3 things need to be present:
• Objective data to analyze to make an informed decision about its value (the price of gold is driven more by emotion than anything else, and there is no data to analyze).
• A relatively low degree of random chance (luck) deciding how the price will behave (see above to know why gold is now 0-for-two on my investment criteria).
• The level of risk involved must be at least somewhat reasonable (I’ll generously give gold ½ point on this one). Gold scores 0.5 out of 3 on my “is it an investment” scale.
What uses are there for gold other than to wear or give to your significant other? And is there ever any point to buying it as an investment/speculation? In the interest of not making this a huge post, I’ll answer those questions tomorrow.
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