People love to debate, but sadly sometimes it crosses a line and turns argumentative. That's what is happening right now with the debate over gold.
There have been several high-profile articles, most recently in the Wall Street Journal, saying you should eliminate gold as a worthwhile part of your portfolio. Primarily because of this year's lower price.
Against that idea, many bloggers and private investors, wondering why gold prices have fallen, say that it shouldn't have dropped. There must be some conspiracy driving down prices when money-printing and our still-weak economy should be driving gold higher. But that still puts current price performance front and center in the debate over whether it should or shouldn't feature in your portfolio. So it misses several key points about why gold is uniquely valuable as an investable asset.
We'd like to look here at some of the common arguments now offered for why gold should not figure in your investment strategy. Yes, working at BullionVault, the physical gold and silver exchange, we're biased. But there are also people who always say gold doesn't warrant your investment dollars.
To have any intelligent understanding of your own position, you need to welcome debate. That way you can challenge your own opinions and, if you find they're correct, improve your arguments too. Such as whether gold investing continues to warrant attention.
#1. Gold Does Not Yield Anything
When you buy any commodity outright you can no longer deposit it with a bank or investment company to earn interest. If you are looking to yield a dividend or interest then physical gold ownership will not yield anything. Yet that is only half the story.
Gold ownership yields security for the investor, the type of security a person seeks from insurance. It is the only physical form of insurance which both exists to counterweight your investments in bonds and stocks, and which is also a liquid, easily traded asset. Gold is also non-correlated with those more "mainstream" markets. Meaning that its price moves indepedently of where other investment prices are heading. So the goal for most investors in holding gold is first as a safety net for their other assets. This metal has held value for thousands of years, and will hold value for thousands more.
#2. Gold Is Worth Only What the Next Investor Will Pay for It
This statement is weak from the onset. There are no stocks, bonds, commodities or goods that are worth more than the next person will pay. That being said gold has something that the others do not. Gold is 100% transparent, in that, unlike other easily traded investments it is only one thing, a pure and precious rare commodity which requires little space for storing great value.
This commodity has acted as money for thousands of years. In fact after World War II, the Bretton Woods agreement used gold to bring brought stability and sanity to the world's currency markets once more. If that history of human use doesn't give intrinsic value to gold, why would you give that title to any other asset?
People had their life savings in Lehman Brothers stock. Other people invested in mortgage-backed securities or were holding Argentine bonds or got sold the claims of Bernard L. Madoff Investment Securities LLC.
Stocks and bonds, though there are many facts available about them, are never 100% transparent. It is much like a hiring a baseball player. You may have his statistics and you may place him in the perfect spot on the best team in the league. Yet he may perform poorly due to an unknown injury or a problem with the change of venue or any other number of unknown reasons. This is the same for stocks and bonds. Though we have their statistics, we never know when some problem may cause some of these instruments to fail.