I don’t hate gold.
That may be hard for some of you to believe. You have read critical things from me about gold, the miners and the quasi-religious fervor surrounding the shiny yellow metal. Some of my commentary about it the past few years may have led some of you to pigeon-hole me as an anti-gold evangelist.
But here is the thing: The underlying reason I love to write about gold is because it offers so many lessons about the behavioral errors of investors. Whether you like to trade stocks, bonds, commodities, real-estate investment trusts, exchange-traded funds or gold, you are subject to these cognitive foibles. It just seems that these are more obvious and glaring among the gold devotees.
Why is that?
Well, gold isn’t really an investment. As its fans are so happy to tell you, it is a store of value and a currency (though try going grocery shopping and paying with gold). In contrast to buying shares in a company, you don’t get a part of an ongoing and potentially growing business; you are not purchasing future discounted cash flows or profits. You will not receive dividends or benefit from share buybacks. Gold, like any other commodity, involves speculation on future price movements.
As for those who insist that gold is an investment, it has done poorly over the long haul. Go back a century and it barely keeps up with inflation. It has done particularly badly compared with equities since the end of 1979, as the chart below shows: