Is Gold a Good Investment?
Is gold a good investment? Actually that depends on why you are buying the precious metal. During your investment analysis you will need to ask yourself: is gold an investment or a store of value?
What Is An Investment?
There are many definitions of investments, but I like to use this economic definition because I believe it clarifies the point. An investment is an amount set aside for future production. Consumption is delayed in order to use the resources from future production or benefits.
Some people may choose to use a broader definition of investment that includes speculation on asset prices. But speculation which is not based on benefits from the asset is a form of gambling. An investor will be better off to distinguish the difference between the two kinds of investments.
If an asset provides cash flow, dividends, or rent, the value of the asset is dependent upon those benefits produced. How should you value an asset that produces no economic benefits? You must hope that someone else is willing to pay more for that asset than you did.
What Is a Store of Value?
Any physical asset can be considered a store of value if it has value as a means of exchange. It can be stored, and can be reclaimed at a later date. What is considered a store of value can be different world wide. What might be of value to one society might hold little or no value to another.
Gold is a commodity which would be considered of value almost anywhere in the world. Based on the fact it is one of the rarest substances on earth and is easily stored and traded, gold is an excellent example of a store of value.
Why Do you Want To Buy Gold?
Do you want to buy gold as an investment because it's going up and others are making profits? Or do you believe your finances call for having a portion of your net worth set aside as a store of value for your future and or your children's future? If it is the latter, that is a decision you can make and feel comfortable with. If it is the first, then you should consider other options like gold mining stocks or ETF's.
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Looking forward to your comments.
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