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All That Glitters

I see posts like this from time to time, ever since gold prices took off back in 2005. I think I find the issue as amusing as Yglesias does. The whole idea of gold as an investment is laughable. Not to say that you can’t make money investing in gold, but usually the people who make money buying gold are not doing so for purely investment reasons. They do things with gold. Products are made with gold. More than half of all the gold mined each year still goes to the jewelry industry. Gold doesn’t uselessly sit in a vault. 

Gold is a highly speculative investment. Yes, gold prices have quadrupled since 2005, but not at a consistent rate and not without some rather visible human suffering behind such rises. The Marikana mine strike in August of this year pumped gold prices back up to a yearly high. Not exactly the way I’d like to see my investments increase in value. 

What worsens the speculative nature of gold is the folks who mistake gold bars for gold futures. A gold future is something easily divested, a gold bar is not. If you buy a gold future then you’re buying an investment. If you buy a gold bar you’re buying a product. You are certainly not trading dollars for hard currency. Someone is making a profit on that transaction and it’s most likely not you. And someone is going to make a profit when you sell that gold bar, but again it’s not likely to be you. 

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