Gold has been described by some as insurance, a hedge to inflation/social turmoil/instability, or just a commodity. It is, however, viewed as an investment most of all the time. see gold price per gram for get more
Even for those who view gold negatively, it is true. “Stocks are better investments.” Most of the time, the logic used as well as the performance results are sufficient to support the statement. But this premise is false. The investment in gold is not a good idea.
If gold is considered an investment, it will be compared to all types of investments. The technicians begin to search for correlations. Some argue that an “investment” in gold is inversely related to stocks. Both stocks and gold have experienced ups and downs at times.
One of the common ‘negative’ aspects about gold, is that it doesn’t pay dividends. This is often cited by investors and financial advisers as a reason why they should not own gold. But then…
Growth stocks don’t pay dividends. When was the last occasion your broker told you to avoid any stock because it doesn’t pay a payout? A dividend does not provide additional income. It is a fractional sale and payment of a part of the stock’s current value. The exact amount you receive as a dividend will adjust your stock’s price to reflect this. You have two options: sell some of the stock shares you own or your gold, if you need income. Systematic withdrawals are used in both cases.
The (illogic) continues… “Gold doesn’t pay interest and dividends, so it struggles to compete against other investments that do.” In short, higher interest rates translate into lower gold prices. In the reverse, lower interest rate correlates with higher gold price.
The statement above, or an equivalent, appears almost every day in the financial media. This includes respected publications, such as The Wall Street Journal. It has appeared multiple times in different contexts, since the US elections last November.
The statement is false, as well any variation thereof, that implies a relationship between gold and interest rate. There is no correlation, inverted or otherwise, between gold prices and interest rates.
We know that when interest rates rise, bond prices will fall. The other way to explain that gold will suffer from rising interest rates is that gold will also suffer from falling bond prices. Also, bond prices and gold are positively correlated. Gold and interest rates, on the other hand are inversely correlated.