I have never understood the allure of gold as an investment. Some people say it's a hedge against societal collapse, but that's BS as we learn from The Atlantic:
Since November, financial advisor David Marotta has been publishing aseriesof blog posts on how to manage your money in the event of a financial apocalypse—as in a world of hyperinflation, governmental collapse, and anarachic mobs. You know, the standard stuff of a doomsday prepper's fever dreams. While Marotta admits he has some fears about the direction of the country (the man's not an Obamacare fan, to say the least) most of it seems to be fairly tongue-in-cheek material aimed at talking potential clients down from investing in some of the crazy, survivalist scams advertised on conservative talk radio. (Sadly, TheWashington Examiner seems to have missed the humor).
And the first scam on his agenda? Plowing all your money into gold, of course. Here's his biblically inflected explanation of why toting around a suitcase of gold come the end times—and at today's prices, a $1 million in gold coins would fit in a suitcase—would be a suboptimal strategy:
If there really is a collapse of the money supply it is difficult to believe that your briefcase of pretty coins will still have any purchasing power near $1 million. In the 1970s, Christian singer Larry Norman made popular the Apocalyptic song lyric, “A piece of bread could buy a bag of gold” based on Revelation 6:6. In The End, I’d rather not have bought as much gold as possible.
In other words, when an economy goes full-on Mad Max and we're all reduced to bartering, the survivors are going to be more interested in useful goods than in a soft metal useful mostly for ornamental purposes. Part of gold's value as a commodity is derived from the fact that it can easily be traded across borders. But if that were no longer an option, and you were reduced to using bullion to buy a baguette, it wouldn't really matter what people in China or India were willing to pay for your gold.
I would also add that, in a truly Hobbesian state of nature, it might not be wise to keep all your wealth stored in a small, easily pilfered box. ...
His bottom line? Keep the shiny stuff to less than 3 percent of your portfolio. And, if you're really convinced the end is nigh, I say stick with canned goods.
I am reminded here of Edward McQuarrie's essay Fool's Gold:
In making a rational decision about whether to invest in gold, two possible outcome scenarios must be considered:
- Society does not collapse
- Society does collapse
Gold can only be a winning investment under the second scenario. If society does not collapse-if we continue to muddle through, as we more or less have in the United States for several centuries now-then gold is a losing investment. To see why, we have to explore what it means to be a "store of value."
I'm going to skip his explanation of why gold makes a lousy store of value. Instead, I want to go on to the survivalist argument for gold:
Please run the following movie in your head: society has just collapsed and you, whistling cheerfully, tossing your gold coins in hand, stroll down to the store, shouldering ahead of those wretches with their wheelbarrows of worthless paper currency, to buy a loaf of bread …
What's wrong with this picture? Two things: either you will be beaten bloody, and your gold robbed, before you ever get to the store; or, you will be followed home and murdered in your sleep-and your gold robbed.
First moral: if you are going to buy gold, you have to buy a shotgun too. Under precisely those conditions where gold will finally pay for itself, it will be far too dangerous for an unarmed person to carry gold. If you truly believe that you need to own gold, then it follows directly that you need to own a shotgun too. Bars on the windows and a Doberman wouldn't hurt either. ...
Second moral: under precisely those circumstances where gold would pay off as an investment, you can't possibly trust anyone else to hold your gold for you. And if you are thinking that you will keep your gold in a repository just until things start to look grim…have you ever seen pictures of a run on a bank…it isn't very pretty. Besides, how are you going to get that gold home, without a shotgun-do you really think the repository employees are going to keep mum about this guy in the red Camry, now heading West on Main Street, with thousands of dollars of gold in the trunk? ...
If you are going to buy gold, you must think and act like a survivalist.
And even in good times, gold makes no sense as a monetary standard, as we learn from Terry Pratchett. In Pratchett's wonderful Discworld novel Making Money, Lord Vetinari maneuvers reformed criminal and current Ankh-Morpork Postmaster General Moist von Lipwig into taking on the job of running the Bank of Ankh-Morpock and the Royal Mint. Lipwig eventually discovers that the 10 tons of gold supposedly in the bank's vaults is now longer there. Panic almost ensues. Naturally, however, Lipwig saves the day, gets the girl, and persuades the citizens of Ankh-Morpock to abandon the gold standard.
In doing so, Lipwig is interviewed by The Ankh-Morpork Times' crack reporter Sacharissa Cripslock, in the course of which Lipwig comes up with what I have always regarded as a compelling argument against the gold standard:
"The world is full of things worth more than gold. But we dig the damn stuff up and then bury it in a different hole. Where's the sense in that? What are we, magpies? Is it all about the gleam? Good heavens, potatoes are worth more than gold!"
"Surely not!," [said Ms. Cripslock]
"If you were shipwrecked on a desert island, what would you prefer, a bag of potatoes or a bag of gold?," [replied Moist]
"Yes, but a desert island isn't Ankh-Morpork!"
"And that proves gold is only valuable because we agree it is, right? It's just a dream. But a potato is always worth a potato, anywhere. A knob of butter and a pinch of salt and you've got a meal, anywhere . Bury gold in the ground and you'll be worrying about thieves for ever. Bury a potato and in due season you could be looking at a dividend of a thousand per cent."
"Can I assume for a moment that you don't intend to put us on the potato standard?" said Sacharissa sharply.