Should you invest in gold in 2022? The cold hard truth why gold is a bad long-term investment.
Investing in gold is certainly a very controversial topic. While Warren Buffett thinks gold has "no utility", for others gold is like a religion. Just search “investing in gold” on YouTube and read the comments on any video, and you will notice that gold is one of those investments that attracts extreme viewpoints and emotional – or sometimes even ideological – arguments that favor narratives over facts and figures. It seems like there is no middle ground.
In this video, I want to take a look at the facts! Here’s what I want to do in this video. First, I will mention why it is important to think about investing your hard-earned money in the first place. Secondly, I will outline some of the core characteristics of gold as an asset that you should be familiar with – because If you have watched some of my videos, you will know that I am a big proponent of only investing in what one understands. In fact, I believe that it is a common rookie mistake to act on advice from others or questionable sources. Warren Buffett once famously said that risk only comes from not knowing what you are doing. So of course you need to do your due diligence if you want to invest in gold; you need to truly understand this asset class. And lastly, in a third step, I will take a look at the historical returns of gold and discuss whether gold has been a good investment in the past (+ I will compare the historical returns of gold to the returns of stocks).
I will also point out that some "gold gurus" will argue that they put gold in their portfolio because it "balances the situation when stocks fall." Firstly, there is absolutely no correlation, either positive or negative, between gold prices and stock prices. Secondly, I encourage people to be long-term investors, and as such, you shouldn't worry about short-term volatility! The only thing having gold in your portfolio accomplishes is that it significantly lowers your expected long-term annual return.
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Chapters:
0:00 Intro
1:43 Why Invest?
5:55 Characteristics of Gold
10:42 Historical Returns of Gold
19:18 Conclusion
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The content provided on this channel should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. The stocks and funds discussed on this channel are examples only and may not be appropriate for your individual circumstances.
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I hope you enjoyed the content!
Do you consider gold an attractive investment?
Gold is an excellent investment. But I would not call it an investment. It is really a choice to safeguard your money. It is important because the only way to get out of the massive U.S. debt problem is to buy back the debt with a higher gold price. The government will do that. It is the only option. China may lead the way by backing the Yuan with gold.
The new gold price will be at least 40K an ounce. Gold may be a commodity now but it will be money when we go back to a gold standard which will happen. Look at the high price of bitcoin. The bitcoin price is the canary in the coal mine. It is saying: Look how fiat money is failing. Gold should be the same price as bitcoin now. But the establishment naked shorts gold but not bitcoin. So, that is why bitcoin has climbed so high in price and gold hasn’t. But gold will have its day as more people demand delivery.
Today, it is crucial to own gold, silver or copper. The world has gone mad with money printing and debt. It is not a rebellion against capitalism as you say. It is a rebellion against fiat currency. It is a rebellion against the banks which cause all the problems because they control the money supply.
Peter de Luca: Economist
I actually had to rerecord a part of the video because my camera didn’t focus. Can you spot it?
يوجد الذهب في مكامنه على شكله العنصري الحرُّ، أحياناً على شكل قطع أو حبيبات داخل الصخور، أو على شكل عروق في باطن الأرض، أو في الطمي في قاع الأنهار. على العموم فالذهب فلزٌّ نادرٌ نسبياً؛ وهو يوجد أحياناً على هيئة محلول جامد مع فلزّ الفضة في سبيكة الإلكتروم؛ كما يشكّل سبائك طبيعية مع النحاس والبالاديوم؛ بالإضافة إلى تشكيله ملغمةً مع الزئبق.
الذهب فلزٌّ نفيس استخدم في سكّ العملات وفي صناعة الحلي، بالإضافة إلى الأعمال الفنّية للعديد من الشعوب والحضارات والدول على مرّ الزمان. يلعب الذهب دوراً مهمّاً في الأداء الاقتصادي العالمي، لذلك يكون لغطاء واحتياطي الذهب تأثيرٌ على السياسات النقدية في دول العالم. يوجد إجمالياً حوالي 186,700 طنٍّ من الذهب في العالم وفق بيانات سنة 2015؛ وتتصدّر الصين الإنتاج العالمي بحوالي 450 طنٍّ سنوياً. يتوزّع الاستهلاك العالمي من الذهب المنتج حديثاً وفق ما يلي: حوالي 50% في صناعة الحليّ، و40% في الاستثمارات وحوالي 10% في الصناعة. نظراً للخواص المميّزة التي يتمتّع بها من حيث قابلية السحب والطرق والناقلية الكهربائية ومقاومة التآكل، فإنّ للذهب أهمّية صناعية تطبيقية، خاصّة في المجالات الإلكترونية.
At least this was my expierience with it
i would rather invest in a gold-mine. like buffet. at least that produces a cashflow and can grow
The lesser of two evil 🙂
In my opinion, not a good idea to invest in gold miners. Too many variables can go wrong like labor problems, politics, and bad management. Also, the miners are literally being ripped off in the futures market as naked shorting of gold in a rehypothecated paper gold market suppresses the price. Buying gold bullion is the smarter move.
👍
Please continue making more videos like this. Don’t give up.
Thanks for your comment Galib. Goal is to release around 40 videos this year.
will gold rise or not? plz reply me
“I really have no ability to forecast gold prices. I have been in the business for 30 years, and it occupies my mind day and night.” (Peter Munk, chairman of Barrick Gold)
LOL great quote 8:52 🙂 Now, seriously: we can ditch gold as an investment asset, but given all the monetary expansion going on, gold may have its place instead of cash (ie, store of value); for a portofolio with over 60% in equities and the rest in cash. What are you thoughts?
It depends on your goals. It might be a good long-term store of value but I don’t like it as a short-term store of value as it can be quite volatile. So no, no gold for me.
Gold is an insurance policy, not an investment. Inventors will buy some gold as it is one asset class different from the bond/equity markets. Similar is real estate or BTC. I have bought silver and gold since 2018 and it’s up about 35%….timing is a big factor both in asset purchase to determine profit or loss and investment time horizon. Some investors may not have 20 years for a market to recover (1933 to 1954).
Ask the question, “why the banks with their brightest financial analysts and multi-million dollar AI analyzing systems are buying much gold .Also why are China and Russia buying gold hand-over-fist”. They are not buying metric tonnes of gold to lose money.
Another consideration, unless you are investing SOLEY in the exchange index, it is unfair to compare gold to equity historic returns. Gold is unvaried (fungible). Gold is gold and could almost be considered as one company in the market vs 1000s of other companies you are comparing against gold. The reality is tens of thousands of companies on different exchanges and their stocks have crashed to zero and gold has never crashed to zero.
Also, do consider the average shelf-life for a fiat currency is 27 years… not sure if the USD will last 5000 years as gold has. Retooling a stock structured in fiat into a new fiat often means the equity held loses value in purchasing power due to restructuring and administration costs. Anyway, you do sound like a student of Buffet (no problem, I too respect him). However the stock market shut for 4 months in 1914 (?), and 25 oz of gold bought a city block just after WW2 in war-torn Berlin’s shopping district when German fiat was worthless. I’d say it makes sense to have some money in gold….no more than 10%.
Hello Billy. Thanks for your comment. You are certainly right about me being a Buffett disciple.
Hi Billy Bob. The view of gold behaving like a single company in the market due to it’s fungibility is very interesting and not something I’ve ever heard. Thanks for such a unique insight.
@Harry Speakup
Hello Harry, happy Friday…depending what time zone you are.
There is another thought to add to my list of considerations when comparing gold to stock markets..
Gold was illegal to one of the largest investment markets from 1933 until 1971 (personal US investors). In addition the price was fixed. So how can one fairly judge gold in our modern times when these sort of restrictions have been imposed on gold? So, I think Buffet is being a bit closed minded when considering gold is simply a “yellow rock”. I am not too harsh with him obviously because of his amazing track record and how he has been exposed to gold. The reality is, throughout his formative years and through his early to mid adult life, he has been fed the USD is king and gold is irrelevant.
@Billy Bob Mirango Happy Friday to you too. I briefly posted my own perspective on gold in a comment to Rene Sellman on his video eleswhere in the comments. I see gold primarily as a tool for volatility management in a portfolio and under very particular (rare) circumstances it transforms into an antifragility play. I totally get why value investors are anti-gold although I do have a problem with those who validate their opinion by blindly parroting Buffett’s public pronouncements when his private dealing is often in direct contradiction to to his words.
Running with your comments on US actions concerning gold during the 20th century (and similar actions by my own UK government over the same time-period), it’s clear that there is a lot going on behind the scenes that retail investors like you and I are not privvy to. Admittedly, this mostly falls outside of the considerations of traditional value investing but I think that unless you learn to truly understand the role of gold in human history and its ongoing influence in finance and economics your wealth will suffer.
Finally, don’t you think it funny how many value investors don’t seem to have anywhere near as much problem with hedging their value portfolios with fixed income assets as they do with admitting that gold also has a role to play.
I think most commodities probably have an intrinsic value based on the cost to produce it, which i think would mean that as technology advances their prices would go down, which is quite obvious when you look at grains and cotton etc. So a quick google search would show that gold’s intrinsic value (cost to mine) is about half it’s current market value. Bitcoin is somewhere near 20-25%. A lot of people in India, buy gold A) because it’s part of the culture B) It didn’t have for a long time a functioning free market and by extension a stock market. A lot of big companies were state owned, and protected so they didn’t really produce a lot of value, and just provided employment, which crowds out real businesses. They’re called “Loss-Making Public Sector Undertakings.” I’ve seen in my lifetime the Rupee go from Rs. 40 to $1 to Rs. 75 to $1, whereas Gold has gained on both. Gold is basically… your “when your country falls to invasion” insurance plan.
Interesting take. Thanks for sharing!
Great guidance and a logical explanation, thank you.
You’re welcome!
So how much money do you have in an emergency fund (since you say keeping cash in a savings account is like burning it)?
I actually am a big believer that cash provides a lot of optionality value. So I wouldn’t put myself in the “cash is trash” camp.
I also distinguish between cash within your portfolio and cash outside of your portfolio (emergency fund). How big you emergency fund needs to be depends on a lot of factors (for me it’s 3 months, but I have a very safe job, for instance, no kids, … and so you might need to go for a bigger one).
Everything you say about gold as an investment is true. But gold is a unique asset. Along with its categorisation as a commodity it also retains vestigal properties from its historic role as a currency and as a store of wealth. Gold is more a tool for constructing efficient portfolios than it is an asset to be measured against other asset classes on a pure return basis. Despite it’s appearance as a shiny metal, it’s main role is to make other assets shine more brightly. It has been widely shown that under most market conditions holding gold in a portfolio unequivocally lowers the risk of both equities and bonds without impacting on their returns, at least according to the efficient frontier. So you are right, gold is a bad investment. But it still remains an essential component of any risk-minded portfolio.
If you assume that risk = volatility, which is false if you have a long-term horizon.
@René Sellmann Thanks for the dismissive reply to something i worded quite carefully.
@Harry Speakup Didn’t mean to sound rude, sorry.
Thank you. I have been wondering what to store my money in and I kept thinking of gold. But because of a little doubt i found your channel and so i will put my money inyo something better. Ty
If not gold what is a good investment that you invest in?
High-quality publicly traded companies / stocks
Take your time to become educated though. And ETF will likely do the job for you. But don’t be in a rush.
Within the last 3 weeks my 40 grams of gold has risen in value by £52.00 so much for your “theory” about gold.
Congratulations.
I was considering investing in gold because of how poorly stocks have been performing. Good content. Question is what can I possibly invest in now since stocks are performing poorly?
Personally, I only invest in stocks because over the long term, it’s the best performing asset class. What are you referring to when you say that stocks are performing poorly? The last three months? Actually we’ve witnessed the longest bull market in history from 2009-2020 and even in 2020 the S&P was up. So I guess most people (including myself) never really experienced stocks performing poorly for a prolonged period. But we will inevitably experience it at some point.
What is the measurement for the price of gold and what karat? 24k? a pound? by the gram? what are we talkin here
There are obviously many different measurements. IIRC, for the graphs I shared in this video the price should be USD/oz (ounce).
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