Why is Gold a Dumb Investment?
Gold is not an investment with steady and compounded returns; rather, its storage costs reduce returns while it does little to protect against inflation or political uncertainty.
Why doesn’t investing in gold make any dent on people’s minds?
It’s a Commodity
Gold is considered a commodity because it can be easily bought and sold, while being interchangeable between one ounce and the next. Although not used as currency by governments in circulation coins, gold has long been seen as an asset that provides shelter against inflation and devaluation in its past forms.
Gold as an investment does not generate cash flows, making it impossible to see any return. Instead, your wealth is dependent on speculation on its price – an ineffective way of growing wealth. For optimal wealth creation and economic development purposes, stocks offer far superior opportunities compared to yellow metal that just sits there doing nothing – so even for trader or tactical investors it would be wise to steer clear from investing in it altogether.
It’s a Currency
Gold may be an attractive investment choice – however there are other viable investments as well. Physical gold bullion (coins, bars or jewelry), exchange-traded funds or futures contracts all provide opportunities. Physical gold purchase requires additional costs related to storage and insurance costs which could drive its price up significantly.
Gold may be a popular investment choice, but it is no effective hedge against inflation. While its performance in this role varies considerably over time – particularly over the past three years when inflation rose rapidly – stocks have historically proven more reliable as an inflation protection mechanism.
It’s a Symbol
Gold has long been seen as a symbol of wealth. It remains attractive during times of war, political upheavals, or economic uncertainty; investors often flock to it in times they fear their currencies or economies may be at risk.
Investors invest in physical gold for various reasons, including diversifying their portfolios and protecting wealth. But in most cases, stocks or bonds could offer higher returns while still giving the investor something tangible should something go amiss.
As another point to keep in mind when purchasing physical gold through funds or exchange-traded products, commissions further diminish your return potential. Over time, a pile of gold remains stationary while money invested in productive economic activity could grow considerably larger over time; whether that is worth your while depends on both risk tolerance and goals of an individual investor.
It’s a Fear-Based Investment
Gold can serve as an investment option during times of political or economic instability, when global investors feel their currencies could collapse or economies threaten to implode, thus providing a safe haven. When faced with uncertainty in these fields, many global investors turn to gold.
At first glance, this may be an appealing investment option when interest rates are low and inflation forecasted to increase; however, investing in other assets could bring greater returns.
Physical gold purchases are costly and difficult to store safely, potentially leading to loss in value or theft. Furthermore, investing in physical gold may not provide an efficient diversification of your portfolio as unlike shares or bonds or deposits it does not produce cash flows and therefore unproductive compared to investing the same money into something productive like an enterprise that could help contribute economic development while expanding your wealth over time. Gold provides little more than inflation protection.