Is Gold Really A Good Investment?

Before going any further it must be stressed that nothing in this article is to be construed as financial advice. Having said that…

What is gold? It is element number 79 in the periodic table; its symbol is Au, from the Latin aurum, and it is denser than lead. What is gold used for? Before the modern era it was used primarily for jewellery, adornment, a symbol of wealth, and to trade. Gold is the most malleable of metals which makes it ideal for use in certain industries. Minute quantities are used in mobile phones, for example, but apart from that…

The commercial value of gold is like the commercial value of anything else; it is worth what people will pay for it, not because it is shiny and rare. Lots of things are rarer than gold but have little or no value – says the man who once sold a letter signed by Tony Blair for £2 on eBay.

Most importantly for investors, gold is said to maintain its value. Money can be printed in enormous quantities or created electronically in unlimited quantities. While most of us would like to have more money in our pockets, simply printing money (or creating credit) has disastrous effects on the economy. If you want to see how disastrous, visit eBay and search for Zimbabwe currency. It is probably more accurate to say that currencies depreciate rather than gold maintains its value.

All that being said, there are a number of YouTube channels especially that encourage their viewers to invest in gold. They will not be named here, nor will the firms they recommend, but some of you will be familiar with both of them. One company that sells gold is currently offering its customers free silver valued up to $2,500 with qualifying orders. This sounds very generous, but it begs an obvious question, how does it make money?

Any jeweller will tell you that all jewellery including gold has a massive mark up. Dealing in anything involves profit margins; shares have a selling price and a higher buying price, ditto trading in currencies. Let us say though that you purchase a quantity of gold, do you take actual possession of it? If you don’t, do you trust an institution to hold it for you? If you do, how do you know it is still there? This was how fractional reserve banking emerged; people would give their gold to a goldsmith to hold for which he would charge a fee. Goldsmiths soon learned they could lend gold and charge the borrower a fee as well. In time, the goldsmiiths realised they could lend out not the actual gold but receipts – which became banknotes. Human nature being what it is,  there were soon more banknotes in circulation than gold held by the bank. This would lead to “a run”  on the bank, people losing their money.

So you decide to take physical possession of your gold, what next, do you hide it under the mattress, bury it in your back garden? The issue of storage fees can arise as can insurance. In the United States especially, some people who buy gold can receive tax breaks, but as can be seen, the simple idea that gold is a hedge against inflation or a good investment isn’t so simple.

This short BBC video takes a look behind the scenes at the Bank Of England. Did you ever see so much gold? Now ask yourself what use it is? Ninety years ago, Louis Even published a short story called Salvation Island that debunks the fallacy of the gold standard. When a small group of men are shipwrecked on a desert island, they set about building a community. They are joined shortly by a banker who has a barrel of gold, or so they think. You can read the story for yourself, but the bottom line is that the banker ends up owning everything. The good news is that eventually, the others revolt and force him to give up his gold, but when the barrel is opened it contains only rocks.

The moral of the story is obvious, some people may grow rich using gold – even imaginary gold – but at the end of the day it is the goods and services produced by the community that is its real wealth. Our governments, all of them, need to address this problem. They need too to address the problem of war, because there is a small group of people and corporations that profit mightily from it. Again, no names but you can probably think of at least a couple. This was one of the problems Donald Trump was addressing during his Presidency, and one which the current insane Administration along with the Deep State is making worse by the day, especially in Ukraine.