Why Investing in Gold isn’t a Good Idea

Why Investing in Gold isn’t a Good Idea


Dylan Lewis: Hi, I’m fool.com deputy managing
editor Dylan Lewis, and on this FAQ, we’re going to be tackling a question we get all
the time online: is gold a good investment? There’s a huge portion of the financial media
that fixates on gold. The most common argument you’ll see is that gold is a hedge for an
economic collapse. Gold’s seen as a safe place to store money because it’s been used as a
currency for thousands of years. That history, plus gold’s global appeal and limited supply,
sells a lot of people on the value of gold as an investment.
But is it actually a good idea? As an investor, you’re looking to buy something
that will be worth more in the future than it is today. To measure that, a lot of people
will look at intrinsic value, or the inherent worth of a company, property, or asset.
Most of this analysis will look at the money the potential investment over time might generate.
In the case of a business, you look at the expected profits the company could generate
over time. As a shareholder, you’re a part owner of the business, and so your stock entitles
you to a sliver of those earnings. For a business that grows over time, earnings should also go up,
and the value of your piece of ownership should follow. What’s tricky about gold
is that as an asset, it doesn’t actually generate cash. The piece
of gold you own today will be the same piece of gold five years from now — no more, no less.
If you buy a house, you can decide to rent it out. Over time, the rental payments
you receive could provide a steady flow of cash. Alternatively, you can live in the house,
and instead of paying rent month after month, you’d be making mortgage payments and building
equity over time in an asset that is capable of creating cash flows. On its own, gold
can’t generate cash, which makes it a little bit harder to value. The value of gold is
really tied to its scarcity. It gives it value in the jewelry market and it makes it useful
as a store of value and means of exchange. Some of you probably heard that and thought,
“What the heck does that mean?” Globally, gold is recognized as a precious metal. The worldwide
recognition there means it can be readily exchange across borders and cultures, which
is part of the reason why major institutions like central banks maintain gold reserves.
It’s also why some investors want in on gold. They view it as a hedge against economic instability
and inflation. Paper dollars, like the U.S. dollar, are fiat currency, meaning they have
value because we say they have value. Sounds familiar? So, if events unfold that lead people
to question the value of a fiat currency, or the government takes actions to change
the value of the currency — like printing way too many bills and giving them out to
people — the currency can lose value. If a currency loses value, the relative value
of gold as expressed in that currency will shoot up, allowing investors in gold to profit. 
Some people keep money in gold because it’s less tied to any one government and isn’t
as impacted by inflation or an economic collapse in any one country. But, its merit as an investment
really depends on the timeline that you’re looking at. From September 2008 to August of 2011,
the price of gold went up over 100%, while stocks in the U.S. eked out a 1% gain
on a total return basis. There’s money to be made in investing in gold, but it comes
down to being right about gold at the right time, because gold tends to surge in value
when major financial systems are struggling. Since September of 2011, stocks have returned
over 180% on a total return basis, while the price of gold has fallen nearly 30%. The returns
of the S&P 500 trounce gold on a one, three, five, and 10-year basis. For people with a
very long time horizon, since 1990, the S&P has posted 1,400% gains on a total return
basis. Over the same nearly 30-year period, gold has returned 220%.
If you’re worried about an economic downturn, it may make sense to have a small portion
of your portfolio in gold, but it certainly shouldn’t be your main investing strategy.
And for many time periods, you’d be better off being in all stocks. 
Thanks for watching, guys! If you have thoughts on gold, drop them in the comments section
below. If you have any ideas for us to do a future video, please let us know. If you
enjoyed this video, give us a thumbs up, and be sure to subscribe to get more
content like this from The Motley Fool.

55 Comments

  1. My mother tong is French. I can understand what you say, but it would be much easier without that music, it is by far too loud. Thanks for the next time !

  2. Completely agree. I think gold is overrated. Sure, it's always going to be valuable and a relatively safe investment, but long term is always better to invest in assets with bigger growth opportunities.

  3. So clueless. Since going off gold standard in 1971 gold has returned about 7% while stocks have returned about 9.5%. On a risk adjusted basis gold is a superior investment and an important part of a portfolio. USD along with all other fiat currencies will eventually implode, it's basic math since the economy consistently grows slower than the debt. Will you be ready?

  4. Can gold reasonably serve as a cash equivalent hedge in your portfolio, as one would use CDs or treasuries?

  5. Michael Maloney says different. I run with him on this topic. Cryptocurrency is a good investment.

  6. When this market crashes gold is going to the moon!! And if/when the dollar and other fiat currencies collapse it could be basically priceless

  7. Physical Gold is an hedge against inflation and incompetent governments.

    However don't spend all your savings on it since it's better to grow your wealth first before you try to protect it.

  8. Treat physical gold n silver like long term stocks you know youll never sell, so it will just sit there increasing your net worth. To hell with that im keeping my physical gold n silver. Nothing wrong with having money everywhere

  9. Get the timing right, maybe once in a decade, use the right method to multiply gains and you'll cover up the missed opportunities of a lifetime

  10. Don't bother buying gold. It is WAYYYY overpriced. Buy SILVER. REAL SILVER. When the economy shits the bed, the value will skyrocket… AGAIN.

  11. If you buy shares in a business or buy real estate you are still buying something that is real. If the world collapses tomorrow, people are still going to need a place to live and a store to go buy food at.

  12. House needs maintenance, have to pay utility bills and property taxes, liable of damages, etc etc. Gold on the other hand is still gold.

  13. This all well and good if certain things could not be manipulated, look at housing… yes what you said is true you can always live in a house, but if you need to move and you bought the house when banks where creating false appreciation you may have a house you bought for $300,000 that is now worth $100,000. Stocks are manipulated daily by day traders and to some extend by your group the motley fool. On your recommendations stocks may shoot up 50% in a day, that is not real value that is perceived value…. any commodity that the public looses faith in will fall or collapse even the stock market as in the 30"s.

  14. This guy needs to do his research and open his mind a bit. Over the last 10 years and the last 20 years gold has beat the S%P and the DOW by huge margins. In addition, the stock market is in an enormous bubble right now. Anyone recommending putting money in the stock market at the very top of the bubble clearly is not informed as to what is going on in the economy at this point. Stock are in a huge bubble and gold is very low and is being suppressed by JP Morgan and many other big banks. Now is definitely the time to be buying precious metals. Let me ask this guy one question – if it is a bad time to be buying gold then way are the worlds central banks currently buying huge amounts of the metal, dumping their dollars and totally ignoring the US stock market? Believe me, they know what they are doing…follow the leader folks.

  15. Those animated graph transitions are really jarring. Each time I tried to figure out what graph I'm looking at, only to find out that it's just a transition, sometimes to an actual graph.

  16. Would love to have 5 Predicitions like y'all did at the end of last year (Robert Brokamp and Alison Southwick) for 2019 but a re-cap and rest of year 2019.

  17. Only a FOOL would be 100% invested in paper! Many of the world's fiscally irresponsible government's continue to BUY AND HOLD physical gold reserves.

  18. Having gold is a great savings vehicle.
    Right now, gold is a good thing to have.
    10 years ago, not so much. The dollar is dead. Not much time left.

  19. 0:24 was your first mistake. Gold has not been a currency or a place to store money, it's the other way round.

  20. Gold is money, everything is just credit. JP Morgan testimony to Congress in 1912. Constitution Article 1 sectoins 8 & 10 says only Gold and silver can be money and paper money is unconstitutional. No amendment changed that and congressional acts cannot change the constitution… So this video is baloney….

  21. My husband insisted on putting his pension lump-sum into GLD, SPDR Gold Shares, when he retired in 2010. Since then, it has appreciated 12.64%, less than 1.4% annual return. Glad we have diversified with other investments to balance out this poor performer, which he insists "will never be worth zero."

  22. Gold should not be considered an investment. It’s an asset which fluctuates in value relative to whatever currency it’s matched up against. The US debt keeps rising to excess of 22 trillion dollars, and the Fed continues to hope interest rates stay low. If those rates go up, look out! Gold will become the only safe haven for insurance against a weakened US dollar and other international monetary values, not to mention a market collapse. Fractional banking is another subject that has many people up to their eyeballs in credit debt, School debt, car loan debt, mortgages, etc. things are great when interest rates are low, but people are kidding themselves if they believe interest rates will remain low forever. Prepare for large down turns in the market. Warren Buffet is not like other people , as much as he is a genius at value investing, but we part ways on precious metals, because he is simply better than almost all other investors when it comes to due diligence and research and fiscal discipline. Now is the best time to buy gold, before a currency collapse or market collapse happens. No one can predict when it will happen, or even recognize it when it is happening, but remember that it will happen quickly, so get prepared now with a percentage of your portfolio.

  23. Thank you for great video. I learned a lot about gold. question is whats the best strategy before crashing market? Asuume a $100k in saving account. how should we protect it before crashing economy? should we buy gold? or real state? or just keep it in bank and waiting for more down market to investment. thank you

  24. Watching again.. anticipated a surge in July and ready to sell back to LC. Seeing the demand for silver as resources are down below 10% and demand will intensify… with solar paneling to electronics and technology demands globally… BUT this morning researching WNDW and Transparent Solar Windows plus green effect… next stop in the research is How will this affect the Solar Paneling… maybe needful for industrial-sized buildings without windows… but is silver still involved in an alternative energy solution like solar… windows!? 50 story glass building etc… your kitchen window, etc. Hmmm, Any thoughts?

  25. in 1970 an ounce of gold was worth 35 dollars ; now its worth 1400 . thats %4000 increase . fiat currencies are a joke at this point, gold can be compared to other investments like houses tough, as this video said

  26. Gold should be viewed as an insurance policy you only pay the premium on once. Among other things. it affords peace of mind. Silver on the other hand is a different rodeo!

  27. I'm not worried about an economic downturn, I'm worried about global economic collapse due to unrepayable debt. The day is soon approaching….investing in gold bad? Yes, if you are looking for returns in a growing economy. Gold as a hedge? YES! In a bad economic situation. I read of a doctor in Germany in the 30's while they were suffering massive inflation due to the government printing of money who got a post card from his bank saying that the several hundreds of thousands of Marks he had in the bank were worth less than the stamp on the postcard so they were closing his account. Venezuela is currently experiencing this kind of inflation. The rest of the world is in store for this or some other revaluation of their currency and it won't be good for Americans.

  28. i suggest you to stop reading on screen and better express your feelings and understandings in your own words, Thats how you can create value in your videos,
    anyways, a good video, thumbs up mate

  29. lol the day after you posted this, gold proceeded to take off. mining companies like AU up 75% since may 22.

  30. most of theses people who I see saying that gold isn't a good investment are usually just basing it on our current economic system and doesn't focus on things that may happen in future times

  31. If gold is a bad investment, why are the central banks and world governments buying Gold and Silver in large quantities?

    The reason is because our central banking system that the world operates under is a debt based system. That means that the money that we use in our bank accounts when we swipe a debit card or exchange in the form of cash doesn't actually exist.

    If you look at a US Dollar from a $1 to a $100, it says in bold letters " FEDERAL RESERVE NOTE ". A note is a document of debt. The US dollar is a promissory note. When you have a US dollar in your hand, you are holding a glorified I.O.U… It's a promissory note. In other words it's a piece of paper that says in simple terms "this paper is worth one dollar because the US government took out a loan with the central bank and this paper is proof of the loan and therefore you can use this piece of paper as a means of trade".

    However… what most people don't know is that every time the government borrows more from the central bank to create money, the dollar inflates and decreases in value. That means that in 2019 $1 could buy a pack of gum but in 2020 a pack of gum could be $1.20, 2021 it could $1.50, and if hyperinflation happens (the economic sum of all fears scenario) that same pack of gum could cost $800,000 and a roll of toilet paper could be $1,000,000… because as more debt is placed on the currency, the value becomes less and less and that's why raising wages is only delaying the inevitable and not going to fix the problem.

    What gold does is gold allows for the individual to hold real money. Gold is and always was the standard for which all economic wealth was measured. So when fiat money hyperinflates, a $1500 1oz piece of gold will get you extremely far in purchasing power. Historically, from Rome to Colonial America to industrial America, a week's wage was roughly about 1oz of silver give or take. Thats about 2-3 grams of silver a day. The gold to silver ratio is 50 to 1… so do the math yourself to see the true value of gold.

    I'll end with this. This guy in the video is reading off of a cue card. He is so poorly educated on this topic that he needs the help of notes to assist him narrating this video. Before taking advice from this guy, do your own homework on what money is; how debt is made; how our fiat money is debt based; why it is debt based; and what investments like Gold and Silver really are for… because this guy is making it seem like people are buying gold like people buy a stock. That is not why we buy gold.

  32. A lot of precious metal collectors or stackers like myself aren’t doing so just to hopefully get more in return when we sell it. Many, and I like to think most stackers stack to not see gold and silver as an investment but rather as an asset or tool that will preserve our wealth, as oppose to hoarding fiat currency that quite literally isn’t worth the paper it’s printed on as the value of the dollar consistently weakens every year or so.

  33. I owned gold at one time and sold it at a 1100$ profit only to exchange for the all mighty cash. I am waiting to buy Gold again under $1000. It is certainly a fools game but it sure looks pretty in my safe! Silver is another suckers game, if I didn't trade options I would be a silver stacker lol

  34. Investing in gold is great. You can sell it without paying taxes!
    Try getting your 457 back without paying taxes!
    Stocks in 2019 are showing a cyclical peak and this bull market is very old.
    The economic weakness in world markets makes gold a great investment.
    Be your own bank- hold gold.
    How much gold? 10% of your investment.
    By the way this video makes a case for gold as all investments are cyclical-
    the likely hood of gold hitting 3,000 dollars an ounce in a decade is probably better than seeing nasdaq at 17,000
    in the same time frame. It's a no brainer, gold is relatively cheap at present while stocks are not and bonds
    are a disaster waiting to happen.

  35. People don’t understand gold is not for investment to make money. It’s purely useful to hedge against economic instability/ inflation.

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