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I’m seriously considering investing in gold, as some financial experts on TV have urged. What are your thoughts on buying gold nuggets or bars as an investment?


Physical gold is different from other major types of assets in that it never pays income and, in fact, owners generally have to shell out money just to keep it. If you bought gold in a form like bars or coins, you would have to store it in a safety deposit box or in some grander sort of vault if you’re a big-time operator. You could always keep your stash in a drawer at home, but how shrewd and economical would you feel if you got robbed?

Then there’s the short-term and long-term history of price movements in gold. Gold has zoomed from about $250 to nearly $1,400 in about a decade. Funny how few people were touting the prospects of gold in 2000. Now it’s one of the most popular investments around. The rally has been truly spectacular, but over the long haul, gold has been a mediocre performer, with one of the worst track records of any major asset class.

Since price controls were lifted on gold in 1973, it has gained about 7 percent a year, while stocks have produced annual returns above 10 percent in the United States and 9 percent globally, even including the dreadful last decade. Looking back over two centuries of data, stocks, bonds and even Treasury bills have produced substantially greater returns than gold. The reason is that unlike those other assets, gold plays almost no role in generating economic activity and so it has little intrinsic value. Demand for gold rises when the world is embroiled in turmoil, but most of the time – other than the last few years – the world does just fine.

-Conrad de Aenlle