Gold may not be your best investment

Is buying this a good investment?

Many people view investing in gold as a hedge against inflation, and it is true that gold prices have increased over the last ten years, but in the longer term, the value of gold has not increased much at all. In April, 1980 gold peaked at over $900 per ounce--today it is $1,100 per ounce. That is an increase of approximately $200 on a $900 investment after 30 years, or $6.67 per year. In addition, prices of other goods have increased at a very rapid pace since 1980. So there are several questions to be considered:

  • Is gold a better investment than some other kinds of investments?
  • Does investing in gold have any negatives?
  • What kinds of investments can net more than $6.67 per year on a $900 investment?
  • Does $1100 today buy what $900 did in 1980?

Gold will preserve your capital--to an extent--but does not multiply it. Gold earns no interest and pays no dividends. Most people want to see an increase in their investments--but if the price of gold falls, you will lose money, just as you can lose money in the stock market or any other risky investment. In addition, many people buy gold based on emotion--and when emotions are high, the price of gold is high. In fact, most small investors buy near the top of the market peaks, and therefore are likely to lose money on gold if they are forced to sell.

In fact, there are several other negatives to simply owning gold. First, you must insure it in case of theft, fire, or other catastrophe. Gold typically has to be "scheduled" on an insurance policy, meaning that it is insured separately with a rider. These insurance riders are often expensive and the cost over the long term may easily exceed any financial benefit you will receive from investing in gold.

Second, whether you store it at home, or in a safety-deposit box, or elsewhere, you will have to pay storage costs on your gold investment. If you store it at home you will need a safe, or the insurance company will not reimburse you if the gold is stolen. Storing gold in a safety-deposit box may cost less than a $1,000 safe, but a fairly typical price is $75 per year--which means that your profits would be eaten up (and more) in storage costs. And if anyone--and I mean anyone--knows that you have gold at home, you are then a target for all kinds of criminals--burglars, scam artists, blackmailers, and worse. If you keep any gold at home, you are putting your and your family's safety at risk.

Third, gold has no intrinsic value. You can't eat it, burn it, use it to shape tools, make tools from it, or pretty much anything useful. It's just pretty to look at, and in the case of a real global catastrophe, you may end up with a lot of useless but pretty pebbles, except that gold wouldn't be as useful as pebbles. In a real societal breakdown, there will be nobody to buy your gold.

Fourth, gold coins are taxed as collectibles, and therefore increases are subject to a much higher rate of capital gains taxes. In fact, profits on gold coins are taxed at 28%, whereas capital gains taxes are usually much lower.

And fifth, the price of gold is easily manipulated by managing fear. Companies with large budgets routinely manipulate the price of gold, by exaggerating, withholding, or putting spin on the news, and it is the small investor who always takes the losses.

What kinds of investments might be better than gold?

A Certificate of Deposit of $900 paying 1% would net you $9 per year, a 50% increase over profits on gold. Even better, the interest is compounded, so that every year you would receive a higher rate. And your deposit is insured, meaning that not only do you not have to pay for insurance, you get it free. If you're using gold as an inflation hedge, there are better investments.

If you're really planning for a global catastrophe, you would be far better off with something with a much higher intrinsic value. In such a catastrophe, the item with the highest intrinsic value is food, and therefore a much smarter investment would be seeds. Not only can you plant seeds for food, but each year your seeds multiply. A single tomato plant, at under $4, will yield far more than $6.67 worth of tomatoes, and heirloom varieties will provide you with seeds for the next year's plants.
Thymus vulgaris, Common, Ordinary, or Garden ThymeCredit: Public Domain
Another high-value item in the event of a global catastrophe will be liquor. In that case, you'd be wise not only to grow some fruits and vegetables, but to bake your own bread, in order to keep live yeasts floating around. You can then use those yeasts floating around in the air to ferment your fruit or vegetable juice, and make liquor from those.

Still a better investment in disaster preparation might be to use the money to take courses to brush up on your skills. If you have high survival skills, not only will you not need to worry about taking care of yourself, but you will have skills that are in extremely high demand. You have only to look around you and see how few people cook, in order to realize that knowing how to do all kinds of things our grandmothers and grandfathers did will serve you well in the event of global catastrophe. Skills such as papermaking, distilling, fermenting, building a fire, working metal, woodworking, and, of course, cooking, preserving, and preparing food for cooking will be in high demand, as will medical skills, especially medicinal uses of herbs. Invest in your family's training, too.
Canning Food
And finally, gold should be a last resort. When gold does poorly, everything else in the economy does well. If you're buying a few coins as some sort of a diversification strategy, well and good. But the bulk of your money should go into more serious investments that will provide safer, steadier, and more valuable results.

Own gold if you must, but it should be your last investment, not your first.

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