By Ella Davidson
For centuries, gold was considered one of the most valuable currencies on earth. In more recent years, gold has been an increasingly popular financial vessel for investors seeking security and a significant capital return. But is gold really the best place to put your money?
Not really. Despite what the markets might seem to suggest, gold is not always the safest place to invest your cash, and should absolutely not be considered a practical place to invest the bulk of your money.
It may seem to many that investing in gold is a better idea today than ever before; in recent years the price of gold rose steadily, seemingly with no signs of stopping. Many casual investors saw gold as a way to guarantee a major return on their investment with very little risk. In today’s lackluster economy, too, people saw – and continue to see – a way to earn big returns while avoiding falling interest rates and failing businesses. Historically, as well, gold has been considered a safe place to hold money when one couldn’t trust the stability of their political or financial system; even if it didn’t result in a major return of capital, the money was at least safe from falling currency values.
While this investment strategy has made sense in the past and could work for some highly strategic investors today, for the average investor, gold is not a good choice. Holding your money in gold is not a reliable long-term way to save and grow your money in the long-term, even when rates seem to be climbing non-stop.
Simple put: gold is a volatile market. Investors have not one way to predict whether the price of gold will increase, decrease, or stay the same from one day to the next; the price of gold is completely unpredictable and subject to extremes. This volatility makes gold an extremely risky investment – you could just as easily lose all your money as gain anything.
Gold’s volatility can be primarily explained by the fact that, in today’s economy more than ever, gold is a purely speculative investment. Compared to other investment vessels that have been popular in recent history – property, business start-ups – gold has no real practical use or determinable value in contemporary culture. Gold is one of the least likely materials to be used in any kind of production outside of jewelry making; it is not commonly traded for other goods or services. Gold also, unlike a business or other more-traditional investment, cannot grow, expand, and increase its own value to its investors. People who put money into a business can reap the financial benefits of tangible improvements and expansions made by a successful operation. Gold, at the end of the day, is just a static piece of metal that has no real market value to determine its price. The price of gold is entirely dependent on what markets and investors say or believe it to be worth.
And an investment whose value cannot be measured or predicted is always an unwise one.
Rather than putting your money into gold, consider some of the other investment opportunities available that are both more predictable than gold and can offer steadier returns on capital. These investments may not have the wild returns that can be achieved during a “gold bubble” where prices seem to rise without stopping, but they do offer secure, long-term gains even when interest rates are low. Putting money into an index fund is a simple way for the average consumer to invest in the stock market without taking on the risk and complications of choosing individual stocks or a riskier investment portfolio. An index fund will distribute your funds across several major companies that will pay you dividends over time; sticking with a secure investment like an index fund can, even through market fluctuations, ensure your invested money is safe and growing in the long term.
Investing in gold is not always a bad idea, but it’s not a great one either; a small amount of money, an amount that you are willing to lose if the market turns, can be stored in gold without putting your entire financial life at risk. However, given its speculative unpredictability and market volatility, gold as an investment vessel in which to safely grow the majority of your capital, is just not the best idea.