Is Gold a Good Investment?

Gold is frequently said to be an important part of a portfolio because it hedges against equity crashes or protects a portfolio from rising inflation. We see whether these hold true historically and what has driven the price of gold in the past.

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[mr.eccles]

A significant reason S&P 500 has better annualized return is because central banks around the world subscribed to modern money theory and decide to launch QE like there is no price to pay. If the central banks had allowed recent recessions to take their courses, the stock markets would have had much lower returns relative to gold. Saying to not have to invest in gold is like saying there's no need to wear bullet proof vest to a gun fight because every single opponent in the previous gunfight has shot himself in the foot and you think to yourself, well, why should I bother wearing a vest if he was just gonna shoot himself in the foot. Central banks printing money is just like shooting themselves in the foot. It only appears to not have any consequences to an investors because the underlying assumptions is that an investor is already exposed to the stock market, but the fact money printing and low interest rate allow asset values to inflate to the degree they did ultimately creates wealth gap between those who are and those who are not exposed to the investment world. And when the next recession comes along, not only will as much as half of the wealth be erased, all the years of wealth gap accumulated will force the remainder of the wealth be redistributed and produce civil unrest nevertheless. Discouraging gold as an investment is a classic survivor-ship bias. Every single fiat currency has better performance than gold while they existed. But are we so sure we are at least 300 years too early for the next currency crises simply because we are currently 300 years into the current one?

[benjaminm]

I don't entirely agree. Gold shouldn't be seen as an investment. It should be seen as insurance/capital protection. You're right that Gold isn't always negatively correlated with stocks, in 08 it fell with stocks initially but then look what happened to it over the next 3 years. Anyone rebalancing in 2011\12 and selling some gold to buy stocks would have done very well these last 7 years. With the next crisis likely to be about currencies themselves after years of QE the case for gold is stronger than ever. 10-15 percent in gold is worth it over the long term. Those worried about yield could always opt for gold mining stocks instead. Many pay dividend at around the S&P 500 average of 1.8 to 2%. They are very volatile but this could be seen as good for compounding.

[genusmusa]

Gold is wealth protection, not an investment. As such it should be part of every good investment plan.Many people in Venezuela would have been better of with some gold/silver in their investment plans. If fiat currency crashes, precious metals will 'shine'.

[iheartscientology]

I really like your videos because they're clear and easy to understand. Thanks for sharing :)

[litestuffllc]

These folks suggesting not to buy gold always compare to a up market. Lets compare to a down market 2008. Stock prices crashed on average by more than 50% while gold rose from $600 to $2000 in 2011. It doesn't take a genius to figure out which you'd rather have; stocks can have losses; lose money ;go broke . Gold has intrinsic value; its the best electrical conductor and doesn't corrode or oxidize; making it critical to electronics; dentistry; other medical uses and jewelry because not only is it beautiful but it is hard to find and doesn't react to your body chemistry or cause allergic reactions. If the world economy collapses gold maintains trade value while stocks are worthless. Does it cost a lot to store? Only if your super rich and hold a ton. You can wear it on your finger, neck or like a viking on your arm. These clowns show up trying to dissuade people from buying gold - just before you really want it - why - they are probably buying it themselves anticipating a down turn.

[MisterKorihor]

This analysis is incomplete. Gold is mostly a hedge against tail risk. Specifically, if government debt gets out of hand and the government has to default on its debt or monetize its debt (i.e., hyperinflation). In the former case government bonds/bills will become valueless; and in the latter case all dollar-denominated debt instruments will tank. In both cases it would be very useful to own gold.

[holson]

Sure seems to me that equities are high now and gold seems lower. I feel very comfortable stacking a small amount of precious metals. Plus is gold..its really cool stuff

[kindke]

Gold is a really nice thing to own, especially if you get some old coins ( I have some 1890's gold sovereigns which I love to bits ) but yes dont expect it to make you rich, unless theres some black swan hyperinflation scenario.

I definitely prefer stocks to gold. I have 5% of my portfolio in gold and I think thats fine.

Central banks hold gold, and there has to be a reason for that. Ultimately Fiat needs to be backed by something, ( not just the threat of violence from the issuing state, which is what its currently backed by )

[pam]

Ramin, does your analysis change if interest rates turn negative? Given most bond yields are in the process of turning negative and IMF is suggesting restricting use of cash to keep people in the banking system as rates turn negative (which they will need in order to drop the interest rates 3-4% to sufficiently stimulate the economy given we are currently in the 1-2% range globally). Bonds no longer look attractive given negative yields and the stock indices look decidedly bloated by the first few rounds of quantitative easing (money printing). If central banks continue with the printing (devalue currency) then gold suddenly looks a very attractive alternative.

[grand]

As an amateur I can see that gold is cheaper when their is economic stability. It is higher when there is instability. Good time to buy gold when the economy is strong and stable. Good time to sell at times of recession. Gold can be volatile. I can see that but over the long term it holds its value. Paying to store gold? It must be a lot. A kilo costs £40k. A smaller amount wouldnt be too hard to store at home either in a safe or 'under the mattress'. Gold has a spot price as a raw material. If it's a coin or jewellery it will have a premium on top of that.
Yields from shares are not always guaranteed nor is the share price. S&P (inc. dividend) going up 10% a year. I would be very happy with that but again no guarantee of getting the 10% or anything.

[zadeh]

As long as gold is rare, it will hold it's value.

[bigronvfr]

Thank you for explanation to gold investment, every video I watch of yours I learn something 👍

[misfit]

Where are you going to store it? Vault, sounds costly. ETF, doesn’t that have a recurring fee? The more I look into it the more costly it looks

[herodotus]

given the fact that central banks are now on QE infinity, would you change your position on Gold? I personally do not see the Fed or any central bank in the world raising interest rates any time soon. I feel Gold & Silver are a good insurance against fiat in these trying times.

[chrisf]

I'm very late to this video but the comment @2:50 isn't strictly accurate. Discounting at the risk-free rate will tell you the value of those future cashflows under the most optimistic possible assumptions. The fair value of the stock will in practice be lower, because market participants will tend to discount those cashflows using a much higher rate that includes the so-called equity risk premium. I'm 100% sure that Ramin knows this, but it's the sort of thing that used to confused me until I read enough books and a lightbulb finally came on.

[iandavies]

People should have watched this before piling into gold today! Great video as usual.

[Castlebravo]

Having researched this subject at great length I have come to the following conclusion. If you have total faith in the Governments of the G7 & other developed economies as well as faith in FIAT currency, then don't bother with Gold in your investment portfolio. If you have some doubt in their reliability to keep on delivering on their promises, then set-aside some of your investments as an insurance in Gold. From what I have read 10% appears to be a fair amount. Ultimately the best investment is in good quality agricultural land that can be used to produce food, but you can't hide it or move it, so if things get really bad a rouge government can take it from you. Then you start to think of Gold again. The fact that people have invested in Gold for over 5, 000 years tells you something.

[TrunksThousand]

Ramin, can we access these charts by subscribing somewhere?

[jibberjabber-fmpb]

Timing of the investment is more important than investment itself. with stock market at its peak and economy on shaky ground (not to mention money printing of central banks), i would say this is the time to get into gold and out of stocks and real estate. gold is also a reliable protection agains geopolitical uncertainties that arise from declining prosperity

[RyanBurnett]

Excellent analysis of gold as an investment strategy.