Is Gold a good investment?
It depends what's your definition of "good". When compared to cash, i think Gold is a better choice, since government have the legal license to keep printing money and thus diluting our cash while we're not compensated enough from interest earned from our cash. That is assuming you're not buying Gold at an overvalued price.
But i don't keep my surplus in "cash". I don't enjoy being "poor" slowly but surely.
To me, keeping Gold is like running on a treadmill. Yes, you're running, but you're going nowhere (after adjusted for inflation). On the other hand, keeping cash is even worse! That's like walking up slower than the escalator coming down, and thereby you're moving slower and slower down.
Question : Where do you think gold will be in five years and should that be a part of value investing?
Buffett : I have no views as to where it will be, but the one thing I can tell you is it won't do anything between now and then except look at you. Whereas, you know, Coca-Cola will be making money, and I think Wells Fargo will be making a lot of money and there will be a lot--and it's a lot--it's a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that. The idea of digging something up out of the ground, you know, in South Africa or someplace and then transporting it to the United States and putting into the ground, you know, in the Federal Reserve of New York, does not strike me as a terrific asset.
Source: Ask Warren Buffett on CNBC's Squawk Box - Part 7 (9th March 2009)
Buffett also says "You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all -- not some -- all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?"
Benjamin Graham in The Intelligent Investor also expresses his opposition to investing in gold.
Jeremy Siegel in Stocks for the Long Run writes how gold has barely beaten inflation over the past 200 years.
It is impossible to put an intrinsic value on gold. Companies or properties can be evaluated in numerous ways based on earnings, assets, growth etc. However, gold is just a metal which has no intrinsic value. Any time you are buying without establishing a margin of safety you are more likely speculating than you are investing.
If you buy gold at $1350 an ounce and it drops 50% there is no way to tell if it is trading above, at, or below its intrinsic value. That is why you will have no idea what do to if there is a sharp decline in gold prices. On the other hand, if you buy a property or stocks of a good company, you can check to see whether the earnings is affected as much as the drop in the price.
Take for instance, if you buy a property at RM 200,000 that gives you a Net annual rental of RM 20,000, giving you an annual rental return of 10%. If after 3 months and the property price drops to RM 100,000, we can check to see if the rental drops or not. If the rental did not drop, then we'll know that the property's intrinsic value did not drop. In fact, we can confidently buy more provided that the property price drop while rental remains. I don't know how we can say the same thing with Gold.
Owning a goose that lays eggs vs a goose that does nothing
From the green line of the graph above, it shows that Dow grows at a higher rate than Gold. Owning Equities represents ownership of companies and owning good companies is like owning a Goose that keeps on laying eggs.Does Gold price keeps going up?
No! Infact, if you have bought at the "peak" in 1980, you have to wait 27 years to breakeven, and that's not including the depreciation of money over these 27 years. At this high price of gold currently, it's quite hard to justify recommending investing in gold.
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