Posts Tagged: gold

Unrealistic Expectations and Gold: Gold Is Not An Investment

Gold has been described as insurance, a hedge against inflation/social instability/instability or simply a commodity. However, most people treat it as an investment. See gold price per ounce for get more.

This holds true even for those who have a more negative view of gold. “Stocks make a better investment. In most cases, both the logic used and the results of the investment justify the statement. However, the premise is flawed. It is not an investment.

It is then compared with all other investments when gold is being analyzed for investment. The technicians look for correlations. Some claim that gold investments are inversely correlated to stocks. There have been instances when both stocks or gold moved up and down simultaneously.

One of the most commonly cited ‘negatives’ about gold is its inability pay dividends. This is often cited as a reason by investors and financial advisors to not invest in gold. But then…

Growth stocks don’t pay dividends. Your broker may have advised you not to invest in any stock if it did not pay a dividend. A dividend is not additional income. It is a fractional liquidation of stock and the payment of a certain amount of your stock value, based on that time. The exact amount of your dividend is used to adjust the stock’s price downwards. If you are in need of income, you have the option to sell some of your stock shares, or some gold. This is known as’systematic withdrawals’.

The logic continues… “Glad doesn’t pay interest nor dividends so it can’t compete with other investments that do.” In other words, lower gold prices are correlated with higher interest rates. Conversely, higher gold prices are associated with lower interest rates.

The financial press almost always publishes the above statement or a variation of it. This includes respected publications like The Wall Street Journal. It has appeared in various contexts or at least once since the US election last November.

This statement, and any variation thereof that implies a correlation of interest rates and gold, is false. There is no relationship between gold and interest rate, in any way inverse or not.

We all know that rising interest rates will lead to falling bond prices. One way to put it, gold will suffer if interest rates rise. Another way is to say gold will suffer if bond prices fall. So, while bond and gold prices are positively correlated, gold and interest rate are negatively correlated.