“Gold is not an investment, because it has no risk and no return. Warren Buffett’s well-known criticism of gold is that it has no return and therefore no chance of compounding his wealth.
He is right. Gold has no yield; it is not supposed to, because it has no risk. If you buy an ounce of gold and keep it for ten years, you end up with an ounce of gold – no more, no less. Of course, the ‘dollar price’ of an ounce of gold may have changed radically in ten years. That’s not a gold problem; it is a dollar problem.
To get a return on an investment, you have to take risk. With gold, where is the risk? There is no maturity risk, because it is just gold. It will not mature into gold five years from now; it is gold today, and always will be. Gold has no issuer risk, because nobody issues it. If you own it, you own it. It is not anyone else’s liability.
There is no commodity risk. With commodities there are other risks to consider. When you buy corn, you have to worry: does it have bugs in it? Is it good corn or bad corn? It’s the same thing with oil; there are 75 grades of oil around the world. But pure gold is an element, atomic number 79. It is always just gold…
Wall Street sponsors, U. S. banks, and other members of the London Bullion Market Association (LBMA), have created enormous volumes of ‘gold products’ that are not gold. These are paper contracts. These products include exchange-traded funds, ETFs, the most prominent of which trades under the ticker symbol GLD. The phrase ‘ticker symbol’ is a giveaway that the product is not gold. An ETF is a share of stock. There is some gold out there somewhere in the structure, but you do not own it – you own a share. Even the share is not physical; it is digital and easily hacked or erased.”
Jim Rickards, The New Case For Gold
It is true that money provides no interest payments if it is truly money. If you hold US dollars as cash, for example, you obtain no interest or dividends on them. If you did, it would interfere with their neutrality as a medium of exchange, as people would tend to save them.
This post was published at Jesses Crossroads Cafe
on 25 MARCH 2016.