Five Reasons to Buy Gold

In a speech several decades ago, the billionaire basically called the yellow metal useless.

[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again, and pay people to stand around guarding it. It has no utility.”

 

In the first place, the statement is patently false. Gold is increasingly being used in technological applications from biomedical processes to energy production. But even if Buffet was right and there were no practical uses for the yellow metal, there would still be good reasons to buy gold – starting with the fact that gold is money.

Here are five reasons to own gold gleaned from a Forbes article by analyst Olivier Garret.

1. Gold is money – Gold possesses all of the characteristics of money Aristotle listed 2,000 years ago. The philosopher said sound money must be durable, portable, divisible, and have intrinsic value. You can check off all four of these characteristics for gold. You might also want to add one characteristic to Aristotle’s list. Sound money cannot be easily manipulated by central bankers – i.e. created out of thin air. That’s why the yellow metal has held its value over time while fiat currencies have fallen in value.
2. The dollar has devalued over time –  Speaking of falling in value, the dollar has lost 86% of its purchasing power over the last 50 years. So while it may be “strong” compared to other fiat currencies, the mighty dollar has lost much of its actual strength. It’s like saying a 5-year-old is strong compared to other 5-year-olds. Looking at it another way, the price of gold has increased 2,400% since 1972.
3. Real interest rates are still negative – The Fed has been nudging up interest rates, but the nominal interest rate minus inflation remains in negative territory. In the first quarter of 2017, inflation averaged a little over 2.5%. A one-year bank CD currently pays about 1.25%. People complain that gold has no yield, but no yield is better than negative yield.
4. Gold has no counterparty risk – Fiat currency carries significant counterparty risk. In other words, the government behind the currency could “default,” leaving you holding worthless paper. The value of a dollar depends on Uncle Sam keeping his promises. There is no party behind gold. Once you possess the metal, you don’t have to depend on anybody else to fulfill a contract or keep a promise in order for it to sustain its value.
5. Diversification – As the saying goes, you don’t want to put all of your eggs in one basket. Gold provides diversification to your portfolio. A major crash will make you glad you own some gold.