Gold As an Investment.

[Measure_for_Measure]

Ok, here’s post 46-7 from the older thread:

@Measure_for_Measure

In all fairness, there’s an older distinction between investment and speculation, mentioned in Graham and Dodd among other places. Currently, I see the nomenclature “Speculative investment” every now and then.

“Gambling” consists of very high frequency trading where the expected return is negative, largely due to high transactions costs (in the form of a house take). In contrast investments typically have a positive expected rate of return (though they may have a negative inflation adjusted rate of return). That’s my take anyway.

“Speculation”: Answers - The Most Trusted Place for Answering Life's Questions
There are many definitions. I think Chronos was getting at the, “…practice of engaging in business in order to make quick profits from fluctuations in prices, as opposed to the practice of investing in a productive enterprise in order to share in its earnings.”

Incidentally, many finance textbooks don’t mention gold in their indexes. One that did (Sharpe, et al) devoted but a third of a page to it in the Appendix to the last chapter in the book. They quoted a 1984 study that said that gold amounted to over 6% of the world market wealth portfolio. I suspect much of that was in India and wonder whether they included central bank holdings in the estimate.

FWIW, I think gold can be speculation, consumption or investment depending upon the reasons for purchase. But if the buyer is unclear on the concepts of correlation, diversification or beta, methinks that they are not engaging in investment but rather something else.

@Chronos

So the only difference between a lottery ticket and gold is that lotto tickets have a higher brokerage fee?

@Measure_for_Measure

Gold may be volatile, but I would expect it to at least keep up with inflation over the long run. So it’s a little different than horse racing.

Contrast with this type of stock trading
Those who engage in day trading based upon a 2-3 day seminar on the subject are probably just gambling, since the brokerage fees should exceed one’s expected returns, absent a systematic (and back-tested) strategy. If done rigorously though, it can arguably rise to the level of speculation, speculative investment or risk arbitrage. Professional trading desks engage in the latter.

ETA Cite: Graham and Dodd: Security Analysis (book) - Wikipedia