When Considering Alternative Investments, All That Glitters Is Not Gold
Gold has long been seen as “real money. It is seen as a stable store of value, and in today's ongoing financial instability, it is seen a “must have” alternative investment for any diversified portfolio. Indeed, gold’s popularity is demonstrated by the fact that the SPDR Gold Trust (GLD) has already gathered approximately US$75 billion of assets.
Not surprisingly, as with any mania, articles promoting Gold are everywhere, even in just . Some argue that the entire world will return to a Gold Standard where currencies are literally tied to Gold; others such as the World Gold Council assert that Gold will continue to soar in 2013; and there is a full industry in the UK advising the addition of Gold to peoples' Self Invested Personal Pension Plans (SIPPs).
Those looking for so-called “hard asset” alternative investments, however, are making a real mistake by limiting themselves to gold alone, and would be well served by also considering other hard assets such as oil and gas, real estate, agriculture and other options. There are really a number of weaknesses with Gold as an investment, and whilst I know that the yellow metal has a passionate following amongst “Gold Bugs”, there is truly a legitimate argument to be made that Gold is has some real disadvantages as an investment.
With that said, here are some weaknesses about gold to consider before someone buys huge amounts of this metal.
1. Gold is largely an economically unproductive asset, rendering it essentially a "faith-based" investment. The other hard assets mentioned above, however, represent activities of genuine economic value. For example, consider agricultural land. To state the obvious, farmland produces food, the production of which is – again to state the obvious – necessary for basic human existence. To take another example, if you look at property – perhaps as a rental property investment – it is again easy to see that having a place to live and shelter also serves a fundamental economic and human need. Compared to requirements such as food and shelter, however, Gold’s value, is largely based upon the agreement that it is a form of money, rather than its’ inherent economic utility.Continued on the next page