Home News In print this week

Why would anyone invest in gold?

Hebert Lian
Hebert Lian8/28/2017 08:00 AM GMT+08  • 7 min read
Why would anyone invest in gold?
(Aug 28): Gold, gold, who would not like to have some gold? The very word is inextricably tied up with wealth and success: Think gold watches, gold chains and gold bars. We give gold away as dowry. We hoard it in our safes. But is it actually a good inves
Font Resizer
Share to WhatsappShare to FacebookShare to LinkedInMore Share
Scroll to top
Follow us on Facebook and join our Telegram channel for the latest updates.

(Aug 28): Gold, gold, who would not like to have some gold? The very word is inextricably tied up with wealth and success: Think gold watches, gold chains and gold bars. We give gold away as dowry. We hoard it in our safes. But is it actually a good investment?

In my experience, gold is a love or-hate-it affair — there’s very little middle ground. There are those who dismiss it as a low-return asset suitable only for doomsday prophets awaiting the next financial collapse. But I also personally know several sophisticated investors who believe in it. Richard Fisher, president of the Federal Reserve Bank of Dallas, and clearly no fool, was cited by CNN in its 2012 article, “Stock picks from Fed officials”, as having more than US$1 million of his US$21 million portfolio allocated to gold, based on his financial disclosures to the Fed. So, the arguments for gold investment deserve objective consideration to sort the myth from reality. Here is what I found.

Gold offers low investment returns with high volatility
The chart tells us why most investors do not have a significant allocation to gold in their portfolio. Over the last 40 years from end-1976 to end-2016, gold returned a puny inflation adjusted 2%. In contrast, from 1978 to 2016, stocks returned an inflation-adjusted 6.6%, while even supposedly conservative bonds returned 3.3%. Over a longer time frame, economists Robert Barro and Sanjay Misra in their 2013 paper “Gold Returns” found even worse inflation- adjusted returns of 1.1% from 1836 to 2011.

For more insights on corporate trends...
Sign In or Create an account to access our premium content.
Subscription Entitlements:
Less than $9 per month
Unlimited access to latest and premium articles
3 Simultaneous logins across all devices
Bonus unlimited access to online articles and virtual newspaper on The Edge Malaysia (single login)
×
Loading next article...
The Edge Singapore
Download The Edge Singapore App
Google playApple store play
Keep updated
Follow our social media
Subscribe to The Edge Singapore
Get credible investing ideas from our in-depth stock analysis, interviews with key executives, corporate movements coverage and their impact on the market.
© 2022 The Edge Publishing Pte Ltd. All rights reserved.