Gold Even More Attractive as Cash Yields Approach 0%


"If you compare gold in relation to the currencies of the world you'll see that it's done phenomenally well."

One of the most common assaults against gold is the idea that it doesn't pay any interest. Well, duh. It doesn't pay any interest because there is no risk involved in holding it. Usually you are paid interest because there is a certain amount of implied risk to holding a certain asset, and this is measured by the yield. Gold has no risk because there is no obligation attached to it. Once it's in your possession it's yours. That's it. End of story.

When you hold bonds and Treasury instruments, they pay interest because there is a possibility that you just may never get your money back (no matter how slight that may be). And guess what, there is also an inflation element. Inflation eats away at your purchasing power. In a credit based fiat-monetary system, as we have right now, there is nothing keeping the supply of funny money from growing, so inflation is built into the system and hyperinflation is just around the corner.

Now that I think about it, there is an inflation element built into gold! When inflation rages, gold holds its value. The average person will see this as an increase in the "price" of gold, but in reality gold is not moving up or down, the money in your pocket is just getting more and more worthless! Curiously enough, in deflationary environments gold does just as well. During deflation, the demand for liquid 'money' increases, as we are witnessing right now. Gold has held up remarkably well during this time of massive de-leveraging. If you compare gold in relation to the currencies of the world you'll see that it's done phenomenally well.

Guess what folks, Treasuries don't pay enough to cover the inflation rate. And yet you still have all the risk of default, inflation risk and lost opportunity cost. This argument has got absolutely no more legs to stand on. The argument is worthless.

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