Why is Gold NOT a Good Investment?

Sara in Maine asks “Why is gold NOT a good investment?” – and although it pains me to say, the yellow metal is NOT perfect for everyone.

Bullion.Directory’s Ask Ally Service
By Alison Macdonald
Commercial Editor at Bullion.Directory

But on the other hand, I know that not every glittering prize is gold, and not every gold investment is a pot at the end of the rainbow.

So starting with some of the most common (and now largely discredited) reasons…

1. No Yield or Dividends

Yawn. The pet rock defense. As a pet rock it sits there, looks pretty, but doesn’t do much else.

The argument goes “Unlike stocks or bonds, it doesn’t pay dividends or interest. It’s not going to generate any income while you hold it. So, if you’re looking for a passive income stream, gold might leave you a bit disappointed.”

Well that was maybe then, but now physical gold investments CAN and DO pay interest-like income, through a growing number of companies who will borrow your gold and lend it out again, paying you ‘rent’ if you will, on the metals you’ve handed them.

Monetary Metals are the best known of the Gold Leasing companies, but more are entering the space every year.

There are also now readily available Gold Collateral Loans where you can borrow against your gold and then use the monies to make additional investments, leveraging your gold investment and using some it’s value to make active trades and income-bearing investments.

So it’s a myth that gold can’t produce income – it can and already does for thousands of investors.

2. Storage and Insurance Costs

Owning physical gold can be a bit like having a high-maintenance pet. It needs a safe place to stay (storage) and protection (insurance).

These costs can nibble away at your investment over time. It’s not just about buying gold; it’s about keeping it safe, and that can be a costly affair.

Again, this may have once been the case for smaller holders of gold, but there are now a wide choice of secure storage facilities, some charging a very low micro-percentage of your holdings and others a low fixed fee.

In cases where gold MUST be stored in an approved facility, such as with Gold IRAs, many of the best gold IRA companies charge a very small fixed fee or even no annual charge at all, no matter how large your holding may be.

And besides, its not like other valuable assets don’t come with costs, fees, storage or maintenance charges.

3. Liquidity Issues

While gold is generally liquid, the naysayers say it’s not always a walk in the park.

Again this was once the case, but now there are so many gold dealers both online and in any large town or city, that choices are far greater – and choice breeds competition, meaning these gold dealers are going to offer you good prices and usually immediate buys.

While yes it’s maybe not as straightforward as clicking a button and selling stocks, especially if you own larger bars or less common coins, it’s hardly a struggle.

There can be micro-hurdles like shipping and verification testing, especially if you need cash in a hurry – but the reality is unless you live in the back of beyond with no infrastructure or car – selling gold at a fair market price is now easier than it ever was.

Gold is highly sought after, and in the days of Google reviews and sites like Bullion.Directory, nobody is low-balling anyone anymore

4. Opportunity Cost

Investing in gold used to mean your money was tied up in a non-productive asset.

Those funds could potentially generate higher returns if invested elsewhere, like in stocks or real estate. It’s the classic opportunity cost dilemma.

However as I already covered in #1, you can now borrow against your gold collateral to make additional investments – which completely removes this argument.

Yes there are interest charges, but leveraged investing always comes with a cost.

5. No Intrinsic Value Growth

Gold doesn’t grow or change; an ounce of gold today will still be an ounce of gold in ten years.

Yes I’ve heard this argument a few times now, so somebody is going around spreading this nonsense. Of course gold doesn’t physically grow, but it typically outpaces inflation and in the past 25 years has had an average annual return greater than the S&P 500 or the Dow Jones (8.65% versus 7.62% and 6.93% respectively).

If you take this better-than average growth, then it’s a growth that grows exactly the same way as any other asset grows.

True, it’s value is largely dependent on external factors like market demand and currency strength, unlike a business that can grow and increase in value over time – but almost every other traditional passive investment is the same.

Very few people can influence stocks, or investments other than the likes of Elon Musk, and look where that got him… a court case and claims of insider dealing and market spoofing.

No, this one just makes no sense.

6. The Industry’s Dark Side

Now, let’s talk about the gold industry itself. This one IS a real issue and it’s my pet peeve, getting my blood boiling on at least a weekly basis.

Gold is not always glitter and glam. The industry can be murky, at best – and I’m being as polite as I can here. It seems to attract more than it’s fair share of immoral sociopaths – and as soon as the Feds take one down another will spring up in their place, in part due to the cash sums involved and in part because the market has little regulation.

Bait-and-switch tactics, high-pressure sales and less-than-transparent pricing are commonplace. Sales reps will think nothing of overcharging seniors for ‘collectibles’ that are little more than regular bullion. The list goes on, and sadly on.

It’s a field where walking in uneducated can mean walking out with a lighter wallet and a heavy heart.

But, Sara in Maine, you now also have impartial sites like Bullion.Directory with thousands of genuine consumer reviews.

And legislation IS coming. Slowly but surely – so the days of scams in precious metals are now thankfully coming to an end.

To finish up, while gold has its allure and undeniable charm, it’s not the one-size-fits-all solution for every investor. It’s crucial to approach gold investing with a clear head and an understanding of its limitations.

Love gold for what it is – a timeless, beautiful metal with a unique place in the financial world, but be aware of its shortcomings and the industry’s less savory practices.

Remember, all that glitters is not gold, and even gold itself isn’t always the golden ticket it’s made out to be.

But it usually is.

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