Why Do People Buy Gold?

On August 31st, 2011 the gold price closed at $1828.50.

Today gold trades at $1,192, a decline of almost 35%. Gold investors, however, continue to remain bullish.

There are many reasons why people value gold more than stocks or bonds, as follows:

1. Gold has been “money” since time immemorial.

2. Gold can be touch, felt, and seen – and does not require a brokerage account to hold. In other words, it is a tangible asset.

3. Gold has a positive historical return, not as good as stocks or bonds, but over the past 20 years it has gone up 200% from $391.29 to its current price. (Based on May 20, 1995 price of 391.29)

4. Gold retailers have a HUGE incentive to sell gold, and mark up the “spot” price to turn a profit. Large online gold retailers advertised by supposedly “conservative” talk show hosts or even politicians have been known to rip of their customers by marking up the price by 30% or more of the actual value you could get from a mom and pop coin dealership. If this has happened to you please comment below.


Gold is a Bad Long Term Investment

My personal opinion on this metal is tepid at best – if the world goes into complete chaos gold would be the last thing I would be holding – much more valuable would be fresh water, food, seeds, weapons and ammo. After that comes skills that would benefit a post-apocalyptic world. Correct me if I’m wrong. A much better return can be gained in stocks with good companies. Below are a few examples for the past 20 years:

  • Gold (200%); Microsoft (807%, not including dividends!)
  • Gold (200%); Apple (2600%; also not including dividends)
  • Gold (200%); Target (1150%)

Of course, gold cannot go bankrupt and is a finite resource – but pick and choose a random company from 1995 that hasn’t gone bankrupt and including dividends you would be hard pressed to find one that had lower returns than gold.


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