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Is gold a good investment? Show more Show less

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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Real rates are the driver of gold

Gold's performance is not tied to the level of inflation but to the level of real interest rates. This goes contrary to what many thought and is called Gibson's Paradox. When real rates are positive, gold does poorly. When real rates are negative, gold does well. https://www.investopedia.com/terms/g/gibsonsparadox.asp and https://www.nber.org/papers/w1680.pdf
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Gibson's Paradox gold inflation interest rates real rates

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Further Reading

The key paper on Gibson's Paradox is here. https://www.nber.org/papers/w1680.pdf Here is a good read on the arguments in favor or against Gold. https://mpra.ub.uni-muenchen.de/65484/1/MPRA_paper_65484.pdf

References

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    This page was last edited on Sunday, 23 Feb 2020 at 17:40 UTC