Unrealistic Expectations, Gold, and Gold Are Not Investments

Gold is often described as insurance. It can be used to hedge against inflation/social disorder/instability. However, most people consider it an investment. gold IRA is a self-directed individual retirement account that invests in physical gold as well as in other precious metal.

This is true even for people who are less positive about gold. “Stocks can be a better investment.” Most cases are supported by the logic employed and the performance results. But the premise of this statement is false. Gold is not an investment.

When gold is analysed as an investment, it is compared with other investments. The technicians then look for correlations. Some people believe that investing in gold is more closely related to stocks. However, both stocks as well as gold have seen periods when they went up or fall simultaneously.

One of gold’s most criticized characteristics is the fact that it does not pay dividends. Investors and financial advisors frequently cite this as a reason for not investing in gold. But then…

Growth stocks don’t pay dividends. When was it that your broker advised you to steer clear of any stock that didn’t pay a dividend? A dividend is not extra income. It is a fractional liquidity and payment of a portion your stock’s market value. The exact amount that you have received as a dividend adjusts the price of your stock. If you need income, it is possible to sell your gold or stock shares periodically. The process is called “systematic withdrawals” in either case.

The logic continues… “Since it doesn’t earn interest or dividends and is therefore not able to compete with investments that do.” In simple terms, lower gold prices result from higher interest rates. Inversely, lower rates of interest correlate with higher gold values.

The statements mentioned above or variations thereof are almost all commonplaces in financial press. Respected publications like Wall Street Journal are included in this list. It has appeared in some contexts or another multiple times since last November’s US elections.

False. This statement (or any variation thereof) implies that there is a correlation between interest and gold rates. There is not an inverted correlation between gold rates and interest rates.

We know that higher interest rates mean lower bond prices. Also, gold will suffer when interest rates rise. Gold will also suffer if bonds prices drop. Or, in other words, gold is positively correlated with bond prices; gold and interest are inversely linked.