With how often gold is touted in the major media outlets you’d think it could be a good investment, or at least should be part of your investment portfolio, right? WRONG. Gold is an absolutely horrid investment. Today, the price of gold is over $1,300 per oz. That’s the highest ever, right? Well…only if you ignore inflation. In 1980, gold peaked at $887. Adjusted for inflation, that’s $2,350 in today’s dollars. That means that since 2010, Gold has lost 40% of its value. And this is what people are claiming is a great investment?
For some graphical proof, check out this chart in Jeremy Siegel’s Stocks for the Long Run:
$1 invested in stocks in 1802 would be $755k. Both of these are in real dollars. This completely takes away inflation. If the chart didn’t take away inflation, the $1 in 1802 dollars would be worth over $10 million in today’s dollars. Now, let’s look at gold. $1 invested in gold in 1802 would not even be worth $2 today in real dollars. I don’t know about you, but I don’t want to wait 200 years to double my money.
You can’t argue with the long run returns of gold; they’re horrible. However, some people will let their emotions get the better of them. Some will say: “That’s nice Will, but what about if the economy collapses? Everybody will use gold as currency.” That argument is a myth. Please show me any recent economy that has failed and reverted to using gold as a method of exchange. Don’t waste too much time looking, because you’re not going to find one.
So, if gold has delivered a terrible return over time and if it isn’t going to be used in an economic collapse, why should you buy it? Well…you shouldn’t. I won’t lie and say that people haven’t gotten rich off of gold. People who time gold correctly have done well. However, people who time stocks correctly do even better. And investing for the long-haul really isn’t about timing. If you’re a trader, this really isn’t the blog for you. I’m all about investing.