I like gold. It’s pretty, shiny, heavy (hold a gold coin, then hold a quarter). But it’s not a great investment. I’ve come to realize that… reluctantly. You see, a couple of years back, I was kind of a gold bug. At the peak of my gold bugginess, I had a pretty intense debate over chicken wings and beer in Fargo with my brother about the Bullionvault account I had just opened. Bullionvault is an online platform where you can buy, sell and own real gold and silver.
I hit him with the fiat currency argument. It’s worth less than the paper it’s printed on! I stuffed the national debt down his throat. I finished him off with the tailored suit argument. Did you know an ounce of gold could buy a tailored suit 100 years ago? (Not verified by me personally) Boom! I left that dinner sure that I had won the debate. Since then, I have slowly come to realize my brother was right. Investing in physical gold is not a great investment, at least not for a guy like me, and here’s why:
Just Another Pretty Face
My brother got some words in somewhere during that little debate, something about gold doesn’t produce anything… blah, blah, blah… I’m really just guessing, because I totally tuned him out as I basked in rightness. Even though he’s in finance, he was wrong and I was right, because I’m six years older. Luckily some of his words stuck, specifically the word produce.
Gold just sits there, looking pretty, waiting for someone to decide it’s worth something. It’s very valuable, only because a lot of people have said it’s valuable for a very long time. Sure it’s rare. But other metals are much more rare. Looking at you Iridium. Others are more useful. Hello, silver. In fact, gold’s entire argument for being the store of monetary value throughout human history and the gold standard of noble metals rests almost entirely on its distinct yellow color. Of course, it’s a little more complicated than that. It doesn’t corrode. It’s soft and easily coined. It’s rare enough that valuable coins can fit in your pocket, but not so rare that $1,000 coins are specks of dust. See this great article from the BBC on why we value gold.
But, we don’t need to carry around coins anymore. And lots of people don’t care to show off their wealth. The world is changing. Gold has held its value so far because of its history and some people still like how they stand out when they wear it. What happens when everyone decides they all of a sudden hate the color yellow?
Contrast that with stocks and the stock market. The underlying companies that make up the market actually do produce things. In fact, when you invest in the total stock market, you are essentially investing in the sum total of human ingenuity and productivity. And human ingenuity is worth much more than gold and will never go out of style.
Not As Rare As I Thought It Was.
Don’t get me wrong, gold is rare… for now. All the gold ever mined in the world so far would fit in and 20x20x20 meter cube which would fit in Wimbledon Centre Court, says the BBC. That kind of dramatic visual is one reason I bought in. It’s scarce and I wanted a chunk of that cube.
But that’s all the gold ever mined. It’s not even close to all the gold that is believed to exist in the world. A few years ago there was a claim on Shark Tank that gold can actually be harvested from seawater as by-product waste from a power plant. That odd random segment of TV actually got me thinking. Does gold really just aimlessly float in the ocean like the flakes in a bottle of Goldschlager waiting to be scooped up by crazy scientists? How much gold is there exactly that is left to be found? That ultimately led me here thanks to Discover Magazine and the Google machine. There is actually 1.6 quadrillion tons of molten gold believed to be at the core of the Earth. How many zeros is a quadrillion? Enough to coat the entire surface of our planet in 18 inches of solid gold, they say.
I know, the many scientists that read this blog will complain, There’s no way to get at that gold so it doesn’t really count. But I don’t care. Just knowing there’s that much gold out there kills the appeal for me. I was focused too much on the stuff we’ve found, the relatively little cube that fits in the tennis court. But, just because we haven’t got to it yet doesn’t mean there’s not going to be plenty to go around in the future. After all, mining technology is constantly improving (consider our current oil glut). And you better believe if Donald J. Trump wins the presidency there will be a journey to the center of the Earth.
Behind Before I Began
I mentioned in the intro that I put money into Bullionvault, a trading platform for physical gold and silver. It’s actually a pretty nice platform if you have money to burn and you’re not yet convinced by my arguments above. The site fees are relatively low and you actually own the physical asset stored in a vault or vaults of your choice all over the world.
But even with the relatively low fees on Bullionvault, I was starting off way behind in my investment. The money I paid in storage alone ($4 per month, $48 per year) on my measly $2,000 was almost 2.5%. Even if I had a respectable $10,000 I was willing to put into gold, I would have started out in a not insignificant 0.5% hole. Contrast that with the Vanguard Total Stock Market ETF, which has an expense ratio of 0.05%.
So, don’t pay the storage fees. Just buy the coins and store them yourself, you say. Here’s the problem with that. Coin dealers like to make money too. Expect to pay at least 5% over the spot price of gold for gold coins from even the most reasonable dealer. That doesn’t include sales tax. Turn around and sell the gold back and you’ll take a similar haircut. Round-trip, you’ve lost 10% and that doesn’t even take into account the fact that the price of gold can fall… dramatically… for no good reason. Investing in physical gold just doesn’t make sense for a guy with limited funds like me.
But What About The Zombie Apocalypse and Impending Doom of Society?
Gold isn’t even the answer here. The sad fact is you would be better off stocking up on bullets and crossbows if you really believe that’s where we’re headed. I actually don’t, so please don’t go out and stockpile an arsenal of weapons because you read this article. If you do insist on stashing coins for any economic crisis, it should be smaller silver coins or something like that. It should be something in small enough denominations to easily exchange for food, transportation, tools and shelter to ride out any major economic tragedy. Hey, can you break a thousand? Don’t be that guy.
Like I said, I like gold. But I no longer consider gold a good investment or even great protection against the zombie apocalypse and collapse of society. I may buy a gold coin here or there, but it will be because I like how it looks and feels and because I like holding history. Not for any other reason.
I am not an investment advisor. These are my opinions. Please do your own research before investing in any asset.
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