May 23, 2011, 12:53 pm

Gold is Not an Investment

By CARL RICHARDS

Carl Richards is a certified financial planner in Park City, Utah. His sketches are archived here on the Bucks blog and on his personal Web site, BehaviorGap.com.

Gold is not an investment. It’s a speculation.

Investments are made by evaluating underlying value. Speculative bets are made by looking at the price of something and simply hoping the price goes up. Investing is about value; gambling is about price.

Gold has no real underlying value. I know there is a market for it. I know it is real, just like real estate was real in 2007.

But what is the value of a bar of gold?

It has no value except the one assigned by a herd of speculators. This is true for most commodities. They don’t actually produce anything. They are raw material. No value. No dividend. No cash flow.

Investing in gold is a very dangerous game right now. Whenever the price of something rises as much, and as quickly, as gold has, we need to stop and consider the end game. While in Florida last week, I was surprised to see guys standing on the street waving “We Buy Goldâ€