The Case Against Gold Even Now

The Case Against Gold Even Now

The wealthy zig when everyone else zags. That’s why they’re on Easy Street while everyone else is still on Main Street.
Warren Buffett epitomized the wealthy’s mentality when he said:
“Be fearful when others are greedy, and greedy when others are fearful.”
In other words, avoid the investments everyone else is flocking to and flock to the investments everyone else is avoiding.
So with the price of gold at all-time highs, do you think the wealthy are touching it? Not a chance. In fact, there’s not a time when the wealthy will ever touch gold as an investment. 
Proponents of gold argue that when society collapses and the dollar becomes worthless, gold will then be the currency of choice. That argument seems dubious since commodities like food, water, and even toilet paper would have more value than gold in an apocalypse.
There’s precedence for how people would react in an economic collapse.
Would they flock to gold? Probably not.
Look what happened to the Weimar Republic in Germany in 1922 and 1923. The economy collapsed when most of the workers went on strike for several months, ceasing all manufacturing and production – resulting in hyperinflation.
In one year, the price of a loaf of bread went from 163 marks to 200,000,000,000 marks. Did Germans go from paper to precious metals for currency? Not at all.
Why not?
Because people were hungry and cold. People went to a bartering system. Skills, food, and commodities became currency. People traded services with each other and traded services for goods. Instead of working for money, people worked for food, fuel, and other goods.
In uncertain times like what we’re living through now with the COVID-19 pandemic, investors buy into the hype of gold as a hedge against hyperinflation.
Don’t buy into it. Even in a hyperinflationary environment, there will be far more valuable commodities than gold.
At any other time, is there a place for gold in a portfolio? Not according to the wealthy.
Why do the wealthy avoid investing in gold?
For one, it’s not different from investing in common stocks – purely speculative – rising and falling with investor sentiment.
Gold prices follow the laws of physics. What goes up must come down:

  • After hitting previous highs during the Great Recession and the European sovereign debt crisis, the price of gold dropped like a ton of bricks.
  • After hitting a low of $800 an ounce in early 2009, the price of gold climbed to above $1,900 in the fall of 2011 only to plummet 40% by the middle of 2013.
  • Back in 2009 when gold hit the then historical high, gold bugs were predicting the price of gold to climb to $2,300. They were very wrong.

Gold bugs are out in force again, predicting gold to hit $2,300. It may or may not, but one thing is certain, it’s likely to lose all those gains and then some.
Besides volatility, there’s another reason the wealthy avoid gold and once again, Warren Buffett said it best.
When speaking of gold, he said the following:
“The one thing I can tell you is it won’t do anything between now and then except look at you . . . it’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that.”
In that one quote, Warren Buffett not only revealed what he hated about gold but also revealed the type of assets he’s interested in – ones that keep laying golden eggs. In other words, he prefers productive assets.
In a downturn, the wealthy want assets that keep laying golden eggs (i.e., cash flowing). In a recession, people don’t stop needing shelter and food and other necessities and commodities.
Even during the height of the Great Depression, 75% of the nation’s workforce still had jobs. That means people still reported to office buildings and factories and still went home to apartments and houses.
There’s always a need for cash flowing and income-producing assets.
Gold is not a good investment – not now, not ever. 
Investors make the mistake of running from the stock market into the arms of gold to avoid volatility. What they find is another asset just as – if not more – volatile than the one they were fleeing from.
Gold is not the answer in this or any economy. Cash flowing assets are.
Zig when everyone else zags.
Follow the smart money to productive assets that provide income in good times and bad – all backed by a hard asset.
These are the assets that truly hedge against inflation and will help you weather downturns.

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John Turley

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