# Why does the value of gold increase during uncertainty **URL:** \ **Category:** Factual Questions\ **Created:** [July 20, 2016, 4:40pm UTC](https://boards.straightdope.com/t/why-does-the-value-of-gold-increase-during-uncertainty/760428 "2016-07-20T16:40:39Z")\ **Posts on this page:** 13\ **Page:** 4
**Author:** ![Common\_Tater](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/common_tater/32/13846_2.png) [@Common\_Tater](https://boards.straightdope.com/u/Common_Tater)\ **Post date:** [July 23, 2016, 10:14pm UTC](https://boards.straightdope.com/t/why-does-the-value-of-gold-increase-during-uncertainty/760428/63 "2016-07-23T22:14:19Z")
> [@Corry\_El](#): > > No, the common misconception is the one you imply, that an ‘investment’ has to pay out some kind of cash flow. Which a bank account actually does anyway. So by any definition cash is an investment. But so is gold you buy and hold. > > Speculation refers to buying and selling something on the idea you can figure when its value is going to increase or decrease. You can speculate on gold, or stocks, doesn’t mean they aren’t both investments. > > A portfolio can be _invested_ in a certain % stocks, another % real estate, another % bonds, another % cash, another % gold and so on. But my post made no suggestion that gold should be a big part of that. OTOH yes a government could outlaw the holding of gold, but only some govt’s are totalitarian enough to effectively enforce such laws, then what’s the prospect for eg. stock investments in such a case? Certain outcomes or events can benefit investment in gold, there’s no reasonable counter argument to that. > > However as my post (correctly, if I do say so 🙂 ) laid out, the actual key is that gold has basically 0% real expected return but high standard deviation of return, though low correlation of return to stocks. Cash and bonds have negative to barely positive at best (right now) expected real returns but much lower std dev of return than gold, and also zero-ish return correlation with the stock market. No, cash is never an investment, money by definition is not an investment. It is the unit of account in which investments are denominated. The map is not the terrain. It is part of a portfolio. Now it is possible of course to become very wealthy speculating on currency moves, and it’s also possible to lose your shirt. But strictly speaking, it’s not investing, anymore than we can invest in Zloty or Pesos. That’s why they are called “currency speculators”. ---
**Author:** ![Corry\_El](https://avatars.discourse-cdn.com/v4/letter/c/ecae2f/32.png) [@Corry\_El](https://boards.straightdope.com/u/Corry_El)\ **Post date:** [July 24, 2016, 12:58am UTC](https://boards.straightdope.com/t/why-does-the-value-of-gold-increase-during-uncertainty/760428/64 "2016-07-24T00:58:58Z")
> [@Common\_Tater](#): > > No, cash is never an investment, money by definition is not an investment. It is the unit of account in which investments are denominated. The map is not the terrain. It is part of a portfolio. > > Now it is possible of course to become very wealthy speculating on currency moves, and it’s also possible to lose your shirt. But strictly speaking, it’s not investing, anymore than we can invest in Zloty or Pesos. That’s why they are called “currency speculators”. Money is a unit of account, a means of exchange and a store of value. In latter role it’s an investment. Again, speculation is a matter of what you use an instrument to do. As mentioned you can speculate on stocks, that doesn’t mean stocks aren’t an investment. I’d recommend some basic reading, but anyway this is a semantic tangent basically. The longer original post I think covers the basic issue of ‘putting wealth into’ gold as opposed to fiat money or bonds. Whether you refuse to call one or more of those things ‘investing’ (which they all would be) is beside the point. ---
**Author:** ![Surreal](https://avatars.discourse-cdn.com/v4/letter/s/eada6e/32.png) [@Surreal](https://boards.straightdope.com/u/Surreal)\ **Post date:** [July 25, 2016, 3:08pm UTC](https://boards.straightdope.com/t/why-does-the-value-of-gold-increase-during-uncertainty/760428/65 "2016-07-25T15:08:24Z")
I found some data to show how silly the claim that gold wouldn’t have helped during the 2008 crash is: In 2008 the stock market, as measured by the S&P 500 index, returned **-37%**. Foreign stocks, as measured by the Morgan Stanley Capital International Europe Australasia and the Far East (MSCI EAFE) index, returned **-43%**. Small cap stocks, as measured by the Russell 2000 index, returned **-34%**. Value stocks, as measured by the S&P 500 Value index, returned **-39%**. Growth stocks, as measured by the S&P 500 Growth index, returned **-35%**. Emerging Markets, as measured by the MSCI Emerging Markets Index, returned **-53%**. Bonds, as measured by the Barclays U.S. Aggregate Bond Index, returned **5.2%**. But gold beat _everything_ in 2008, returning **5.8%**. I personally have never invested in gold but I can certainly understand why some investors might choose to include some in their portfolios. ---
**Author:** ![treis](https://avatars.discourse-cdn.com/v4/letter/t/bc79bd/32.png) [@treis](https://boards.straightdope.com/u/treis)\ **Post date:** [July 25, 2016, 3:36pm UTC](https://boards.straightdope.com/t/why-does-the-value-of-gold-increase-during-uncertainty/760428/66 "2016-07-25T15:36:20Z")
> [@Fotheringay-Phipps](#): > > The point you seem to be missing is that over the long term gold does a lot better than dollars. The idea is to have something which has long term value which is also more stable than other things which have long term value. > > Losing 20% is not pleasant, but it’s better than losing 30%. > > All that said, I’m not recommending that anyone buy gold, ever. (OK, you can buy some for your spouse on occasion. :)) But your specific counterargument is not a valid one, despite the histrionics. The argument was that gold was a “good hedge” against the stock market. A hedge is supposed to move opposite of your main investment to limit risk by offsetting losses. If your hedge loses value along side your main investment it is not a good hedge. One that nets loses of 20% compared to cash is a terrible one. ---
**Author:** ![ftg](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ftg/32/2801_2.png) [@ftg](https://boards.straightdope.com/u/ftg)\ **Post date:** [July 25, 2016, 7:49pm UTC](https://boards.straightdope.com/t/why-does-the-value-of-gold-increase-during-uncertainty/760428/67 "2016-07-25T19:49:11Z")
**Surreal** : Please note the context of this thread by re-reading the [OP](http://boards.straightdope.com/sdmb/showpost.php?p=19491953&postcount=1). One problem with dealing with “gold bugs” is their insistence on cherry-picking the data. During the market crash of 2008, when did The Big Uh-Oh happen? It didn’t start in January, that’s for sure. The period of maximal uncertainty, as in “Holy cow, this is bad!” was focused in August to October. That was the period of the most uncertainty by far. (The decline of the Dow began the previous October and bottomed in Feb. 2009.) So I only looked at gold in that range. But note that gold peaked in March and bottomed in October. I could have really cherry picked if I wanted to. So, if you can cherry pick to prove a point, but others can cherry pick (with better reasoning), if at all, to prove the opposite, you really don’t have a point. The OP is intrinsically flawed. In addition, these threads always have people who think they can outsmart the market using very simple observations. Another basic flaw. [Here’s](http://www.macrotrends.net/1333/historical-gold-prices-100-year-chart) a historical gold chart with markings for recessions. I suggest clicking on “50 years” (since buying gold in the US was legal) and turning off the the inflation adjusted and log scales. Note how erratic gold behaves during a recession. Sometimes up, sometimes down, sometimes flat. If anything the most common trend is a steep drop then a rise as the recession ends. But that’s still not reliable enough to be a strategy. For one thing, no one colors gray areas on such trends _as they are happening_! We don’t know if we are in a recession right this minute. During a recession we have no idea if we are at the bottom or not until afterwards. * * * BTW: It’s a shame that “investing” gets tossed around like it does here. Buying gold isn’t investing to me. Investing is stuff like buying shares of stock so that a company can expand, getting a CD from a bank so it can makes house loans (insert George Bailey speech), buying bonds to a city can build a road, stuff like that. Putting money into something hoping to get more money out while not actually generating any significant economic development is basically gambling. Gold is the epitome of that. If people stopped gambling and started true investing, our economy would be very different. ---
**Author:** ![Common\_Tater](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/common_tater/32/13846_2.png) [@Common\_Tater](https://boards.straightdope.com/u/Common_Tater)\ **Post date:** [July 25, 2016, 9:10pm UTC](https://boards.straightdope.com/t/why-does-the-value-of-gold-increase-during-uncertainty/760428/68 "2016-07-25T21:10:04Z")
> [@Corry\_El](#): > > I’d recommend some basic reading … LOL!! Yes, let’s. Websters International in•vest’ 1. a To lay out (money or capital) in business with the view of obtaining an income or profit; **to convert into some form of wealth other than money** as securities or real estate, with the expectation of dividends, rentals, etc.; as to _invest_ money in stocks. ---
**Author:** ![Common\_Tater](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/common_tater/32/13846_2.png) [@Common\_Tater](https://boards.straightdope.com/u/Common_Tater)\ **Post date:** [July 25, 2016, 9:14pm UTC](https://boards.straightdope.com/t/why-does-the-value-of-gold-increase-during-uncertainty/760428/69 "2016-07-25T21:14:54Z")
> [@ftg](#): > > BTW: It’s a shame that “investing” gets tossed around like it does here. Buying gold isn’t investing to me. It’s taking longer than we thought ---
**Author:** ![treis](https://avatars.discourse-cdn.com/v4/letter/t/bc79bd/32.png) [@treis](https://boards.straightdope.com/u/treis)\ **Post date:** [July 25, 2016, 9:38pm UTC](https://boards.straightdope.com/t/why-does-the-value-of-gold-increase-during-uncertainty/760428/70 "2016-07-25T21:38:54Z")
> [@Common\_Tater](#): > > LOL!! Yes, let’s. > > Websters International > > in•vest’ > > 1. a To lay out (money or capital) in business with the view of obtaining an income or profit; **to convert into some form of wealth other than money** as securities or real estate, with the expectation of dividends, rentals, etc.; as to _invest_ money in stocks. You didn’t bold the rest of that definition. It says “with the expectation of dividends, rentals, etc”. There’s no expectation of anything like that with gold. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [July 25, 2016, 10:38pm UTC](https://boards.straightdope.com/t/why-does-the-value-of-gold-increase-during-uncertainty/760428/71 "2016-07-25T22:38:33Z")
> [@treis](#): > > You didn’t bold the rest of that definition. It says “with the expectation of dividends, rentals, etc”. There’s no expectation of anything like that with gold. What about corporations that announce they have no plans to pay dividends for the medium-term future? Is buying their stocks “investment”? ---
**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:** [July 26, 2016, 1:25am UTC](https://boards.straightdope.com/t/why-does-the-value-of-gold-increase-during-uncertainty/760428/72 "2016-07-26T01:25:43Z")
Strictly speaking, gold _can_ be an investment, if, for example, you’re a jeweler. A jeweler buys gold bullion, with the expectation that he’ll be able to turn it into jewelry that he’ll be able to sell for more than the bullion value. But of course, in that sense, it’s a lot easier to invest in iron ore, or bauxite, or pitchblende, or any other more practically-useful raw material. ---
**Author:** ![Rysto](https://avatars.discourse-cdn.com/v4/letter/r/ecccb3/32.png) [@Rysto](https://boards.straightdope.com/u/Rysto)\ **Post date:** [July 26, 2016, 1:33am UTC](https://boards.straightdope.com/t/why-does-the-value-of-gold-increase-during-uncertainty/760428/73 "2016-07-26T01:33:39Z")
> [@septimus](#): > > What about corporations that announce they have no plans to pay dividends for the medium-term future? Is buying their stocks “investment”? Yes, because you’re buying shares in the company because you believe in its potential to generate income going forward. Whether that income is distributed to you directly is somewhat irrelevant as you still own a piece of that income. ---
**Author:** ![Corry\_El](https://avatars.discourse-cdn.com/v4/letter/c/ecae2f/32.png) [@Corry\_El](https://boards.straightdope.com/u/Corry_El)\ **Post date:** [July 26, 2016, 2:36pm UTC](https://boards.straightdope.com/t/why-does-the-value-of-gold-increase-during-uncertainty/760428/74 "2016-07-26T14:36:04Z")
> [@septimus](#): > > What about corporations that announce they have no plans to pay dividends for the medium-term future? Is buying their stocks “investment”? This is the rabbit hole you go down once you start trying to parse what’s ‘investment’, a word with different meanings in different contexts, then try to apply an out of context meaning to say various asset classes are or aren’t ‘investments’. So for example "Investment Definition: According to economists, investment refers to any physical or tangible asset, for example, a building or machinery and equipment. On the other hand, finance professionals define an investment as money utilized for buying financial assets, for example stocks, bonds, bullion, real properties, and precious items." [http://finance.mapsofworld.com/investment/meaning.html](http://finance.mapsofworld.com/investment/meaning.html) In this discussion the latter definition is the relevant one. But the clear mistake is to believe there’s any particular significance to whether you conclude buying and holding gold is an ‘investment’ or not. What matters is expected return and risk. Again see the long post which originally generated this tangential semantic quibbiling. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [July 26, 2016, 5:04pm UTC](https://boards.straightdope.com/t/why-does-the-value-of-gold-increase-during-uncertainty/760428/75 "2016-07-26T17:04:40Z")
> [@Corry\_El](#): > > This is the rabbit hole you go down once you start trying to parse what’s ‘investment’ Here you’re agreeing with the point I was making. Rightly or wrongly some people even collect old comic books _as an “investment.”_ > [@Corry\_El](#): > > The long term average correlation of nominal long term US bond returns and US stock returns is close to zero, a generally understood historical fact AFAIK. Let me ask you a question: In the present-day situation, if there were a sudden spurt in wholesale commodity prices what would you predict would happen to U.S. stock prices? What would happen to U.S. bond prices? I think stock and bond prices are sometimes correlated and sometimes anti-correlated. I hear you about to respond _“Duh, that’s what uncorrelated means. Sometimes they move in the same direction, sometimes opposite.”_ but it isn’t quite the same. The correlation depends on other factors. I’m also curious about stock-bond correlation in _other countries._ Perhaps _U.S. bonds_ hold up well when stocks fall in part due to their safe-haven status. [Previous page](https://boards.straightdope.com/t/why-does-the-value-of-gold-increase-during-uncertainty/760428.md?page=3)