Summary of a blogpost published at the Wall Street Journal on why gold is not a good investment:
Everyone is touting gold as a hedge against economy, markets, family troubles, etc., but I think buying gold right now would be a horrible mistake.
Gold has industrial uses in addition to being used to make money or jewelry. It’s a good conductor of electricity and is also used in dentistry. But silver has the same uses and many more. What’s the big difference between silver and gold? Gold is $1,200 an ounce and silver is $18. If you can choose between the two for your industrial use, you’d always choose silver. That’s why the world gold supply keeps going up. Almost every ounce mined remains in supply forever, as opposed to silver, which gets mined and then consumed.
Companies grow, and ultimately return profits to shareholders. The biggest companies like Exxon (XOM), Apple (APPL), Google (GOOG), continue to innovate, develop new products, create new jobs and have earnings and revenues growth. Gold can’t compete with that.
So why does anyone buy itl? Because it is ”fear metal” - you buy it when you are afraid of every other investment. When interest rates go to 0%, as they have now, then U.S. T-bills don’t represent a good alternative to gold. So if you are afraid of stocks, you buy gold instead of T-bills. If global political stability is in question, as it was in 1980 with the Iran hostage crisis and the Soviets invading Afganistan, you buy gold. If global bank stability is in question, you buy gold since you can store it separate from the banking system (albeit with a cost).
Some people say gold is an inflation hedge. But so are stocks. If the dollar weakens, then our products abroad will be cheaper and profits will shoot straight up. Over 40% of the S&P 500’s revenues come from abroad. That makes stocks a good long-term hedge against inflation. Also, many stocks have dividends. The ”dividend aristocrats” - that is, companies that have increased their dividends for 25 straight years or more, have yields that alone surpass the long-term returns of gold. That’s not even counting capital gains you get when the stocks go up. The dividend aristocrats include Procter & Gamble (PG), McDonalds (MCD), and Walmart (WMT).
Don’t put your money on a simple rock.