The Weakness Of Gold

gold_barThe recent Value Investing Summit at the Kallang Theatre Auditorium was going swimmingly as I waxed lyrical for an hour about Burberry (NYSE: BURBY.US), British American Tobacco (NYSE: BTI.US), Inchcape (NYSE: INCPY.US) and lots more. I was even happy to discuss property prices and the recent fall in the shares of Apple (Nasdaq: AAPL.US) during the impromptu Question & Answer session. But then the one question I was dreading was asked.

It was about gold.

As someone who was born in Hong Kong and grew up in Singapore, I know only too well how divisive the topic of gold can be in Asia.

Don’t get me wrong. I love gold.

I have gold jewellery, my two children received gold trinkets when they were born but that is far as my involvement with gold goes. I don’t see the gold ornaments we own as anything more than adornments. And I certainly don’t see them as investments.

Here are a few of my reasons why.

In my view gold is only worth what someone is prepared to pay for it. Of course, you may point out that the same can be said about shares, property, bonds and currency. However, the big difference between the four main asset classes and a commodity such as gold is that the latter does not reward you whilst you own it. With shares you may receive dividends; bonds deliver a yield; cash pays interest and with property you may receive rent. But gold pays you nothing whilst you own it.

It is sometimes said that gold can be a hedge against inflation. That may well be true. An often used rule of thumb is how an ounce of gold would buy a gentleman a suit of fine clothes in the time of Henry VIII and that the same ounce of gold would do the same today. However, when you invest you ideally want your investments to trounce inflation and not simply match it.

Gold is also said to be a hedge against uncertainty. However the problem with viewing gold as “financial teddy bear” is that it cannot prevent bad things from happening any more than a lump of plasticine sitting on your desk can prevent international conflict, civil unrest or the dollar from falling.

Those are just three of my reasons for my lack of enthusiasm for gold as an investment. You may disagree, and I am sure many of you do. But then that is the beauty of the Motley Fool. We are a collection of people with different opinions and your views are as valid as mine. That’s what makes us Motley.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.