# How does buying gold as an investment work? **URL:** \ **Category:** Factual Questions\ **Created:** [January 26, 2021, 7:01pm UTC](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545 "2021-01-26T19:01:09Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Icarus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/icarus/32/72_2.png) [@Icarus](https://boards.straightdope.com/u/Icarus)\ **Post date:** [January 27, 2021, 12:55am UTC](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545/21 "2021-01-27T00:55:56Z")
> [@salinqmind1](#): > > =(sigh) thank you for the answers, I see this commercial with some old bat from Texas buying gold to insure her spawn benefit from all those gold coins. But you can’t use it IRL, that’s the part I don’t get. IF worse comes to worse, if inflation goes sky high, if you have a gold bar, what good does it do? How do you get any value out of it, or gold coins, or even a stash of gold jewelry? To be very charitable in my characterizations - people who look to TV commercials for investment advice are not in the category of sophisticated financiers. ---
**Author:** ![wolfpup](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/wolfpup/32/10618_2.png) [@wolfpup](https://boards.straightdope.com/u/wolfpup)\ **Post date:** [January 27, 2021, 1:06am UTC](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545/22 "2021-01-27T01:06:48Z")
> [@Chronos](#): > > You don’t, in fact, invest in gold. You speculate in it. That’s true for short-term investing. It’s also true for short-term investing in anything else, by definition. But one thing that gold does do quite well over the long term is protect against inflation with relative safety, and that’s the attraction that many find in it. The gold price graph that @DMC posted is rather deceptive in that respect as it shows gold prices in constant 2010 dollars, which completely hides this inflation protection. Indeed, in any ideal world where there were not price fluctuations due to variability in demand, the constant-dollar gold price graph would be a straight horizontal line. Moreover, the DJIA graph is not inflation-adjusted, making it an unfair comparison. I’m not at all trying to argue that gold is a “better” investment, just that we need to assess the data fairly. It’s true that if you were unfortunate enough to buy a lot of gold at any of its various peaks, you’d have to wait a long time to break even in real terms. But this sort of thing can happen with stocks, too. If you look at the DJIA in constant-dollar terms, someone unfortunate enough to have bought a lot of stocks around 1966 would have had to wait nearly 30 years to get their money back in real terms. The DJIA looks a lot more bumpy when presented in constant-dollar terms. One solution to mitigate either situation is to buy gradually over a period of time on a fixed-outlay basis. That said, there’s no doubt that stocks have greatly outperformed gold over the long term, and that while gold more or less offers inflation protection along with price volatility that can work for you or against you, stocks offer an opportunity for real asset growth if chosen wisely and well diversified. But let’s look at the facts fairly. ---
**Author:** ![LSLGuy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lslguy/32/5813_2.png) [@LSLGuy](https://boards.straightdope.com/u/LSLGuy)\ **Post date:** [January 27, 2021, 1:07am UTC](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545/23 "2021-01-27T01:07:53Z")
> [@salinqmind1](#): > > I see this commercial with some old bat from Texas buying gold to insure her spawn benefit from all those gold coins. You will notice that commercials for buying gold bullion are almost always shown on shows that attract scared people. Or that scare people directly. > The sky is falling!! Civilization is doomed!!! You _need_ gold to survive! By and large the folks that fall for that spiel are not rocket surgeons. And the gold sellers laugh all the way back to the mine to get more. ---
**Author:** ![Chronos](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/chronos/32/134_2.png) [@Chronos](https://boards.straightdope.com/u/Chronos)\ **Post date:** [January 27, 2021, 2:31am UTC](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545/24 "2021-01-27T02:31:45Z")
> [@wolfpup](#): > > Indeed, in any ideal world where there were not price fluctuations due to variability in demand, the constant-dollar gold price graph would be a straight horizontal line. Which is precisely why it’s not an investment. An investment increases in value, even independent of unpredictable fluctuations. And if all you want is a hedge against inflation, well, there are plenty of places you can put your money that do that as well as or better than gold, while still giving you growth. ---
**Author:** ![DMC](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dmc/32/18049_2.png) [@DMC](https://boards.straightdope.com/u/DMC)\ **Post date:** [January 27, 2021, 2:52am UTC](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545/25 "2021-01-27T02:52:30Z")
I didn’t notice that they were different scales, as I just grabbed them. [Here is the non-adjusted gold price mapped against inflation since 1800](https://public.tableau.com/profile/dmc7541#!/vizhome/Goldvs_Inflation/Goldvs_InflationinUS). Here is where someone chimes in “but the gold standard”, even though you have sliders to play with. [So, here is a scatter plot pre-filtered to start at 1972 (you can always slide it around) of the two metrics against each other to show the correlation (or the lack thereof)](https://public.tableau.com/profile/dmc7541#!/vizhome/Goldvs_InflationScatter/GoldPriceInflationRate). ---
**Author:** ![wolfpup](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/wolfpup/32/10618_2.png) [@wolfpup](https://boards.straightdope.com/u/wolfpup)\ **Post date:** [January 27, 2021, 3:02am UTC](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545/26 "2021-01-27T03:02:52Z")
> [@Chronos](#): > > And if all you want is a hedge against inflation, well, there are plenty of places you can put your money that do that as well as or better than gold, while still giving you growth. There are some, but I don’t know about “plenty of places” for those fearful of the stock market – not in these days of pathetic bond yields and stable securities like Treasury bills sometimes actually going negative … > **[Getting Ready For Negative Interest Rates](https://www.forbes.com/sites/amiyatoshpurnanandam/2020/04/01/getting-ready-for-negative-interest-rates/?sh=20817c082f87)** > > Negative interest rate presents unique challenges to policymakers and CFOs. ---
**Author:** ![Chessic\_Sense](https://avatars.discourse-cdn.com/v4/letter/c/7c8e57/32.png) [@Chessic\_Sense](https://boards.straightdope.com/u/Chessic_Sense)\ **Post date:** [January 27, 2021, 4:21am UTC](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545/27 "2021-01-27T04:21:42Z")
Or in the most popular thread right now on this very board, “The American Coup.” Gun ownership is at an all-time-high. “Civil War” is being discussed in earnest. The President was charged with inciting an insurrection. None of that sounds to you like impending collapse was maybe on the table for a little bit? ---
**Author:** ![Roderick\_Femm](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/roderick_femm/32/14875_2.png) [@Roderick\_Femm](https://boards.straightdope.com/u/Roderick_Femm)\ **Post date:** [January 27, 2021, 5:14am UTC](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545/28 "2021-01-27T05:14:05Z")
Nope, not all things considered. Nobody who is talking about civil war has the stomach for the real thing, with their family and their own lives and freedom severely at risk. Whatever the ex-President may be charged with, what he actually did was throw a hail-mary pass that was doomed to fail. The worst that mob could have done was to thoroughly shock the rest of the country so much that it would set their cause back 20 years. In any case, gold doesn’t work best in a collapse. As a survival asset, it works best at a level where there are still goods to be had, and where there are still people who value your gold enough to trade goods for it. ---
**Author:** ![DSeid](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dseid/32/20194_2.png) [@DSeid](https://boards.straightdope.com/u/DSeid)\ **Post date:** [January 27, 2021, 5:21am UTC](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545/29 "2021-01-27T05:21:00Z")
> **[How gold could replace bonds as a portfolio diversifier - InvestmentNews](https://www.investmentnews.com/investing/news/how-gold-could-replace-bonds-as-a-portfolio-diversifier-81273)** > > Looking past the precious metal's volatile performance to its lack of correlation with other investments. An argument for gold as part of a diversified portfolio serving a similar function as bonds, replacing them for some fraction. > [@](#): > > Instead of trying to navigate the freewheeling price of [gold over various market cycles,](https://www.investmentnews.com/article/20190805/FREE/190809976/advisers-say-go-for-the-gold-as-the-perfect-hedge-for-trade-war-fears)financial advisers might be better served by focusing on the [precious metal’s lack of correlation](https://www.investmentnews.com/article/20190723/FREE/190729971/low-cost-gold-etfs-introduce-new-fiduciary-challenge?CSAuthResp=1%3A573727640795171%3A114152%3A65%3A24%3Asuccess%3AF50F378611D8A8813510AFDB92A0F10D)with other investments. > > That’s the basic premise of a[research report showing that a 5% allocation](https://insights.graniteshares.com/is-your-portfolio-sharpe-enough/) to gold improves the risk-adjusted performance of a standard portfolio of 60% stocks and 40% bonds. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [January 27, 2021, 5:21am UTC](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545/30 "2021-01-27T05:21:39Z")
In times of _that_ sort of trouble, will the gold storage places that sells you gold and holds it also honor that? I mean, they can just tell you that it disappeared. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [January 27, 2021, 5:28am UTC](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545/31 "2021-01-27T05:28:15Z")
> [@Chessic\_Sense](#): > > Now how are you going to feed yourself? Your paper currency is worthless and your bank account is locked. It’s literally illegal for your new host nation’s banks to accept a transfer from embargoed accounts. Sure would be nice to have some living expenses saved in some sort of universally accepted, fungible commodity accessible from any nation in the world, wouldn’t it? How would that be “accessible” because that would be blocked also. Trust me, you cant move gold electronically from the USA to Iran either. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [January 27, 2021, 5:33am UTC](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545/32 "2021-01-27T05:33:09Z")
> [@wolfpup](#): > > But one thing that gold does do quite well over the long term is protect against inflation with relative safety, and that’s the attraction that many find in it. No, no more than copper does or porkbellies or whatever- or even stocks. ---
**Author:** ![chappachula](https://avatars.discourse-cdn.com/v4/letter/c/d2c977/32.png) [@chappachula](https://boards.straightdope.com/u/chappachula)\ **Post date:** [January 27, 2021, 6:07am UTC](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545/33 "2021-01-27T06:07:41Z")
> [@Chessic\_Sense](#): > > Now how are you going to feed yourself? Your paper currency is worthless and your bank account is locked… Sure would be nice to have some sort of universally accepted, fungible commodity accessible any nation in the world, wouldn’t it? How would that be “accessible” because that would be blocked also. , you cant move gold electronically from the USA to Iran either. [/quote] > [@Chessic\_Sense](#): > > The whole world doesn’t need to collapse for _your_ world to collapse Actually, there is one possible scenario where it might be useful to have a few gold coins. or just a handful of gold jewelry. If you become a refugee, crossing borders and need to bribe the guard. Or ,after you arrive as a refugee in a more stable place where you can sell the gold coins or jewelry for cash. . I know of a person who escaped from Germany in 1932 that way. hmm… it might even be useful for when the Democrats have to flee to Mexico, too. 🙂 ---
**Author:** ![Bootb](https://avatars.discourse-cdn.com/v4/letter/b/e19b73/32.png) [@Bootb](https://boards.straightdope.com/u/Bootb)\ **Post date:** [January 27, 2021, 6:19am UTC](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545/34 "2021-01-27T06:19:58Z")
I’ll just leave this here. > **[History Shows Price of an Ounce of Gold Equals Price of a Decent Men's Suit,...](https://www.businesswire.com/news/home/20110819005774/en/History-Shows-Price-of-an-Ounce-of-Gold-Equals-Price-of-a-Decent-Mens-Suit-Says-Sionna-Investment-Managers)** > > When it comes to an amusing idea rooted in serious discussion, Sionna Investment Managers’ aptly-labelled Gold-to-Decent-Suit Ratio is as close to his ---
**Author:** ![DMC](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dmc/32/18049_2.png) [@DMC](https://boards.straightdope.com/u/DMC)\ **Post date:** [January 27, 2021, 11:36am UTC](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545/35 "2021-01-27T11:36:20Z")
If the title of that article were true, a decent suit cost $36 in 1970, $125 in 1976, $613 in 1980, $272 in 2001, $1,700 in 2012, and $1,163 in 2015. Not really buying into that one either. All of these links purporting to show what gold brings to the table are written by people wanting to sell you gold, as **Icarus** stated in post 6. ---
**Author:** ![Si\_Amigo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/si_amigo/32/2877_2.png) [@Si\_Amigo](https://boards.straightdope.com/u/Si_Amigo)\ **Post date:** [January 27, 2021, 1:20pm UTC](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545/36 "2021-01-27T13:20:39Z")
There are a couple of out of the box ways to buy gold and make a profit. One is to go to auctions and know what you are bidding on, gold dealers (and coin dealers) will never bid more than 80-90% of the weight value since it will cost them 3-5% to have it melted down. But, you need to be on the lookout for some who wants to purchase something as a piece of jewelry, at which point they will overpay. Dealers take portable scales and test kits (gold assay and gemstone hardness testers) with them. The other way is to set up one of those We Buy Gold stores and pay whatever you can get away with from the seller, sometimes half of the spot price. But these have cost as well such as renting a place like a storefront or even a hotel room. Some of these are fairly shady and the cost of doing business may entail getting charged with receiving stolen property along with storefront rent and security cost. Also you may get shot at the end of the day when you are leaving with cash and gold. I once bought a lump of gold with a pendant attachment at an auction that was unmarked and nobody bid on it. Took it into to a well know buyer and the guy told me it was a a bunch of different rings melted together into a blob by a blowtorch. It tested different karats depending on where he tested it. I paid $50 for it and got $300. ---
**Author:** ![HMS\_Irruncible](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hms_irruncible/32/7394_2.png) [@HMS\_Irruncible](https://boards.straightdope.com/u/HMS_Irruncible)\ **Post date:** [January 27, 2021, 1:36pm UTC](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545/37 "2021-01-27T13:36:24Z")
> [@Chessic\_Sense](#): > > Or in the most popular thread right now on this very board, “The American Coup.” Gun ownership is at an all-time-high. “Civil War” is being discussed in earnest. The President was charged with inciting an insurrection. None of that sounds to you like impending collapse was maybe on the table for a little bit? If there is any sort of conflict, you can be assured it will be less like the Civil War and more like the Revolutionary War. By that I mean a reactionary tax-avoidance movement to protect and gain private property. Had Trump actually overthrown the government, it would have been the opposite of financial collapse. Wall Street would have rejoiced in anticipation of many years of unregulated profiteering. If you want to know what’s really a universally fungible commodity that is expected to hold long-term value more than anything, look at how other major economies like China, Japan, and Russia store their reserves: in dollars, not gold. ---
**Author:** ![Deeg](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/deeg/32/2955_2.png) [@Deeg](https://boards.straightdope.com/u/Deeg)\ **Post date:** [January 27, 2021, 5:22pm UTC](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545/38 "2021-01-27T17:22:00Z")
> [@DMC](#): > > If the title of that article were true, a decent suit cost $36 in 1970, $125 in 1976, $613 in 1980, $272 in 2001, $1,700 in 2012, and $1,163 in 2015. Not really buying into that one either. It also handwaves what a “decent” suit is. Really all that article is saying is that you can purchase a suit for an ounce of gold. Depending on the year it may be a hand-made quality suit or an off-the-rack suit at Milton’s. As DSeid’s link indicates, gold isn’t an investment, it’s a hedge against economic shocks. It’s mostly for very wealthy people who can set aside money as a hedge. People talk about how important gold will be in the case of a civil war but how important was gold during the actual American Civil War? It’s not an exact comparison because the US was on a gold standard but at least in the North paper money was viable. Maybe in the South gold was more important when the Confederate dollar started suffering from hyperinflation. Which leads to: gold is only attractive as a hedge against hyperinflation. If you lived in the early Weimar Republic or Yugoslavia in the late 1940’s you were probably OK if most of your liquid assets were in gold. Most of the gold bugs I’ve encountered also rant against inflation; the “decent suit” argument is related. ---
**Author:** ![blue\_infinity](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/blue_infinity/32/2817_2.png) [@blue\_infinity](https://boards.straightdope.com/u/blue_infinity)\ **Post date:** [January 27, 2021, 5:25pm UTC](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545/39 "2021-01-27T17:25:03Z")
> [@Icarus](#): > > the ones telling you to buy gold are not doing that themselves. Instead, they are selling gold This is not quite true. They are doing both. They way these places make money is on the spread - the difference between the buy and sell prices. They don’t really care what the current or future price is, because they don’t ever hold on to the gold; they just want high turnover. ---
**Author:** ![DSeid](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dseid/32/20194_2.png) [@DSeid](https://boards.straightdope.com/u/DSeid)\ **Post date:** [January 27, 2021, 6:28pm UTC](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545/40 "2021-01-27T18:28:39Z")
> [@Deeg](#): > > As DSeid’s link indicates, gold isn’t an investment, it’s a hedge against economic shocks. It’s mostly for very wealthy people who can set aside money as a hedge. Not quite. It is an investment that can be part of a diversified portfolio approach in which rebalancing regularly aims to decrease volatility and increase returns. For anyone with a long term horizon and enough that they are considering asset class allocation. Not a hedge any more than bonds or cash positions are. It becomes more attractive as bonds seem increasingly to crash with equities in declines. Gold’s lack of correlated movement is its plus. Take for example the possibility of a major market downturn. Gold is unlikely to move in concert. Might even go up. A portfolio aiming to keep a 5% gold allocation will have reached maybe 10%, largely due to equity’s downturn… which over time will recover. On rebalance date that gold position gets pushed some into equities allowing buying low. Maybe bonds if they dropped too. Volatility was reduced by diversification and long term total returns increased. Even though as a stand alone it underperforms with huge volatility. That’s an investment strategy not a hedge. [Previous page](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545.md?page=1) [Next page](https://boards.straightdope.com/t/how-does-buying-gold-as-an-investment-work/931545.md?page=3)