It’s a question financial advisers are used to being asked, but I suspect it’s something many won’t be asked for a while – “why doesn’t your investment advice include gold?”
On the back of gold’s 15% fall in a month as it slides into the $1300s, it seems few investors will continue to ask the question they were asking at $1,600 and $1,800 an ounce.
The true believers are saying there’s a conspiracy afoot, with Goldman Sachs and global elites crashing the gold price for their own ends.
While others are saying the decline in gold is reflecting economic growth returning in the US and there will be no hyper-inflation stemming from endless central bank money printing.
The reason for the fall is open for debate, but now gold has taken a large dive those people who were so desperate to buy at each new high have some reflection to do.
They need to ask themselves what prompted their urgency to become gold bugs in the first place.
Firstly they need to remember gold is just an object.
It doesn’t produce anything, it has no projected earnings and therefore no expected return – there are no dividends, distributions or interest.
Investing in gold is more speculating than investing because you buy hoping the price will go up.
This hope has been fuelled because many experts (experts who often sell gold) told us we’d soon see rampant inflation, something which hasn’t come to fruition.
Unfortunately, when the price went up many investors were quickly clouded by recency bias, assuming what they’ve just seen happen will continue and then they feel the urge to buy in.
Then there was the alternative option to capitalise on the boom – gold mining shares.
At a quick glance at some of Australia’s biggest listed gold miners, Newcrest, Regis, Evolution and Perseus showed them down between 40-60% since their highs of last year.
This despite each having overwhelmingly positive broker recommendations.
Gold’s fall is not a conspiracy, just another reminder it’s not healthy to fall in love with an asset class or rush to buy one just because it’s suddenly gone up.