The case against buying gold and silver

Several of my clients have asked me questions where the answer is “buy gold” and I’ve been wary about putting that advice together. I’m going to explore this issue a bit, first by getting a handle on all the reasons it is BAD advice.

1. Neither gold nor silver are productive assets.  They won't earn interest or dividends, losing you the opportunity costs of what you could have been doing with that money in the mean-time.

2. They are subject to theft and loss.  Having gold in my house has made me a bit more vigilant about locking up and keeping strangers at a distance.  I think those are generally good trends anyway, but the mindset is unfortunate.

3.  As an investment, it's quite likely to go down in price, since everyone and his brother are thinking of buying it now.

4.  If it does go up, it's subject to the most exhorbitant tax rate on capital gains as a "collectible".  (Which is why I hold my Gold ETF in an IRA.)

5.  The market is not well-regulated and there's a feeling of uncertainty when buying or selling that you're going to get taken.

6.  Delivery of the metals is risky: getting a few thousand dollars of krugerrands in the mail makes for a few nervous days until it arrives safely in your hands.

7. It is possible that the government will outlaw the private ownership of gold and confiscate yours when it needs it to pay national debts.  (Read history. I'm serious.)

8.  It is equally possible that there would be some sort of law passed which would require that all transactions be made with a government chip card (they'd probably call it "Economic Freedom Act" or some other Orwellian name.)  That would render illegal using "junk silver" as a shadow currency in case the U.S. dollar fails in a larger economic market.  (But it would still work in local markets.  In case you didn't know this, lots of people keep pre-1965 U.S. silver coins, called "junk silver", in a stash at home.  Farmers generally know their value and are willing to sell you things like eggs, milk, bread, vegetables, meat and firewood at something close to spot price.)

9.  You sound wacko and vaguely disloyal and unpatriotic when you talk about the failure of the U.S. dollar.

10.   You lose money on every transaction from mark-ups both on purchase and sale, which effectively turns it either into a straight commodities bet as your "investment" or a straight insurance cost as you hedge against an unlikely possibility.

Originally published July 17, 2009