Gold is the most popular precious metal used for investing. Investors purchase gold bullion as protection against inflation, economic upheaval, and even potential social chaos than might render their national currency worthless. But, is gold a profitable investment over the years? The traditional argument for gold investment is that gold holds its value, its purchasing power over the years while national currencies decline due to inflation. In the first part of the 21 st century when gold went up five fold gold was touted as a good speculative investment by those who successfully bought and sold gold bullion during market swings. So, is gold a profitable investment? Is silver a good investment? How about platinum and palladium? To answer this question a comparison or two is in order.
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An argument for gold is that there is only just so much of the shiny stuff in the world. The argument continues that all of the more easily mined gold in politically safe locations has been mined and in places like South Africa they are mining gold over two miles beneath the surface (East Rand Mine, Boksburg). Thus the price of gold will go up, the proponents of gold say. Also the US and other major economies are in dire straights due to the slowly resolving recession. National budgets are constantly in the red and currency values are sliding. Proponents of gold constantly remind us of the Wiemar Republic, the German post WWI government where inflation went wild and paper money became essentially worthless. To ask the question, is gold a profitable investment, we need to compare with other investments and over time. It comes down to what is a good investment and what the investor is looking for.
When the US government made it legal to own gold bullion again in 1973 gold was, briefly, $35 an ounce. It rose during the inflation of the 1970’s to over $800 an ounce in the first days of 1980. Then the bottom dropped out of the gold market. It bottomed in the 300’s in early 1982, recovered a bit, and gradually moved into the 200’s until 2001. After a decade long run, gold is now pushing $1,400 an ounce. By way of comparison Microsoft went public at $21 a share on March 13, 1986 and after nine share splits the stock sells in the 20’s and has multiplied roughly 19,000 in value. Its $0.52 per share dividend comes out to $9,880 per original $21 share. That is a 470 fold yearly return on original investment without ever selling any stock. Merck, the pharmaceutical giant, has seen its stock split a cumulative 36 fold since 1986. How do these compare to gold? Is gold a profitable investment? Since March of 1983 gold has tripled in value from around $450 to around $1,350. Microsoft had gone up nearly 20,000 fold. Merck has gone up roughly 36 fold. In this selected comparison gold loses out. Why? Gold does not make money. Mining companies do but gold bullion just sits there. During times of extreme economic turmoil gold is portable and has value when fleeing situations of war and social chaos. Is gold a profitable investment? Having gold in one’s investment portfolio may be a good idea if you live in a politically unstable country but maybe a better idea would be to keep enough gold coins to get across the border and learn how to invest in stocks. Find the next Microsoft for a long term investment, and let your broker (outside of you unstable nation) hold your shares.