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Is gold a good investment? Show more Show less
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Is gold a good investment? Will it lead to capital preservation and help and investor realize a return on investment? The question is polarizing, with some investors known as "gold bugs" being obsessed by it and others being completely dismissive of gold as an investment.

Gold is neither good nor bad, it depends on the circumstances Show more Show less

Gold does well in some environments and poorly in others. The main determinant is whether real rates are positive or negative.
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Gold is a good investment when bonds have negative yields

Gold does well when real rates are negative. Given inflation is positive today and real rates are negative in nominal and absolute terms, gold will do very well. Unsurprisingly, gold prices are highly correlated to the percentage of government bonds trading with negative yields.
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The Argument

Gold is neither good nor bad just like money. Money is power though and it’s what people do with that power that ultimately matters. With gold having a stable monetary position in the world due to it being one of the most versatile metals there's no lack of demand. With its value though people like to use gold as a placeholder or substitute for cash. This isn’t just a sentiment shared with retirees though, many governments also place their money into gold. America has fort Knox, the UK has the Bank of England and so on but they all have reserves. [1] If the government bonds trading are taking a hit this only increases the value of gold since an economic decline will only increase its worth. This makes gold a good investment because when the economy is low the gold rate is high. It allows for people to have a monetary safety net if the economy takes a hit or their other investments fail. Gold, with how its seen in our world, will always have worth.

Counter arguments

Gold is both good and bad but depends on who's hands its in to be the defining factor. Many governments have gold reserves at their disposal due to it having monetary value and strength even when the countries own money system might be weak. I.e., a dollar being worth less than a euro and vice versa. When governments take these hits it’s usually due to either economic decline or interest rates declining. Gold is a good means to fall back on when times become though. However, when in the government’s hands its preferable for the government to have the gold than actually use it. While this might seem strange there is a method to this madness. If countries were to put their gold out for sale they would tank the market due to the surplus. [2] For now, most governments hold onto their gold in the off chance that their currency looses its value so they can, in a sense, manipulate the market to their benefit and stay afloat. This makes gold not dependent on the circumstances of how it’s used but by who it’s used for and against.

Proponents

Premises

[P1] The government invests in gold when bonds are bad to try and mitigate a heavy loss.

Rejecting the premises

References

  1. https://www.thebalance.com/which-countries-have-the-largest-gold-reserves-4151249
  2. https://www.usmoneyreserve.com/blog/fort-knox-follow-up-why-does-the-u-s-government-keep-gold-reserves/

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This page was last edited on Friday, 18 Sep 2020 at 02:41 UTC

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