The stupidity of investing in Gold
All banks around the world are telling their clients to buy gold. Harrod's in the UK is going to sell Gold bars in it's departmental stores.
Banks are marketeers-like salesmen selling whatever. We all are-we all were born to sell something in this world (unless you don't want to participate in the world economy, do your share, earn your consumption) but banks and economists and finance guys claim to be rigorous scientists, a completely false claim.
Is Gold a good investment? No.
We need to go back to Adam Smith to understand why it's not.
If people keep buying gold, or jewelry, you see a world full of jewelers, of traders of gold, of jewelery, etc. None of these products in gold's use is a productive investment-a guy an Intel won't produce more chips if he wears jewelry, nor does a toy maker or a car maker produce more of their stuff if they have Gold bars in their homes. These are not productive investments because they don't help people produce more of whatever they produce (intangibles like software included).
Compare this to Natural Gas. Cheap energy is a nice thing to have-a software engineer, or a toy maker, or a car maker, all can produce more of their things if energy costs go down. Energy investments are productive investments, gold is not a productive investment. Cheap energy sets into motion more productivity in the world, we can produce more things with cheap energy, division of labor can progress better. No such thing with Gold.
That something is going up does not make it a good investment. As Taleb explained us in his wonderful "Fooled by Randomness"-history is a bad predictor or future in this case. Trends reverse, gold prices may come down-or underperform other investments. But let's be clear-natural gas is a productive investment (coal, copper, all raw materials fall in this category) but gold is not.
In fact, in the long run (impossible to know what that is, though) gold gains in value BECAUSE we produce more, we become more productive. Because natural gas puts more productive labor in motion is the reason that gold becomes more expensive as time goes on, and becomes a good investment. In reality, it's the abundance of raw materials which are used by industry (e.g. copper, iron-ore, fertilizers, even silver, but not gold) which is the real cause of economic progress or growth. That progress, that abudance of raw materials, gives Gold it's ever rising value.
Beware of the bank salesmen-they just have to trade and sell you whatever is going up-but by investing in gold, you are not putting human industry in motion. You are hurting the world economy-instead of using your capital for industrial metals, which put lots of productive labor into motion (think machines made of copper, iron-ore, energy) you are being encouraged to store it up in a useless metal (industry doesn't use much of it) whose value actually is derived from the former set!
Sanjay
Banks are marketeers-like salesmen selling whatever. We all are-we all were born to sell something in this world (unless you don't want to participate in the world economy, do your share, earn your consumption) but banks and economists and finance guys claim to be rigorous scientists, a completely false claim.
Is Gold a good investment? No.
We need to go back to Adam Smith to understand why it's not.
If people keep buying gold, or jewelry, you see a world full of jewelers, of traders of gold, of jewelery, etc. None of these products in gold's use is a productive investment-a guy an Intel won't produce more chips if he wears jewelry, nor does a toy maker or a car maker produce more of their stuff if they have Gold bars in their homes. These are not productive investments because they don't help people produce more of whatever they produce (intangibles like software included).
Compare this to Natural Gas. Cheap energy is a nice thing to have-a software engineer, or a toy maker, or a car maker, all can produce more of their things if energy costs go down. Energy investments are productive investments, gold is not a productive investment. Cheap energy sets into motion more productivity in the world, we can produce more things with cheap energy, division of labor can progress better. No such thing with Gold.
That something is going up does not make it a good investment. As Taleb explained us in his wonderful "Fooled by Randomness"-history is a bad predictor or future in this case. Trends reverse, gold prices may come down-or underperform other investments. But let's be clear-natural gas is a productive investment (coal, copper, all raw materials fall in this category) but gold is not.
In fact, in the long run (impossible to know what that is, though) gold gains in value BECAUSE we produce more, we become more productive. Because natural gas puts more productive labor in motion is the reason that gold becomes more expensive as time goes on, and becomes a good investment. In reality, it's the abundance of raw materials which are used by industry (e.g. copper, iron-ore, fertilizers, even silver, but not gold) which is the real cause of economic progress or growth. That progress, that abudance of raw materials, gives Gold it's ever rising value.
Beware of the bank salesmen-they just have to trade and sell you whatever is going up-but by investing in gold, you are not putting human industry in motion. You are hurting the world economy-instead of using your capital for industrial metals, which put lots of productive labor into motion (think machines made of copper, iron-ore, energy) you are being encouraged to store it up in a useless metal (industry doesn't use much of it) whose value actually is derived from the former set!
Sanjay
Labels: general commentary
posted by Sanjay "John" Gandhi at 6:43 PM
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