Bret Arends of The Wall Street Journal continues his series on gold today. I blogged the first entry in passing earlier this week because it mentioned gold being a bubble but I'm mentioning it today because it has the funniest description of why gold's reputation as a store of value is overrated I've ever seen.
Gold is volatile. It's hard to value. It generates no income.
Yes, it's a "hard asset," but so are lots of other things—like land, bags of rice, even bottled water.
It's a currency "substitute," but it's useless. In prison, at least, they use cigarettes: If all else fails, they can smoke them. Imagine a bunch of health nuts in a nonsmoking "facility" still trying to settle their debts with cigarettes. That's gold. It doesn't make sense.
As for being a "store of value," anyone who bought gold in the late 1970s and held on lost nearly all their purchasing power over the next 20 years.
Not to go all goldbug monetarist on you - but the reason investors ignore that argument is that the other choices are all government-run fiat currencies (every one of which in the history of history has ended with a value of zero) or other commodities that are even harder to store or value.
Right now, everyone is looking for the least-bad option and a sizeable percentage of them chose gold.
Still, the column is an entertaining piece of writing delivering a serious warning not to get carried away.
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