It’s all over the news. The price of one ounce of gold is over $4,000
Millions of people — and even some governments — consider gold to be an investment. Good for them.
Ever since I became interested in investing, I’ve always dismissed the idea of owning gold. I still haven’t changed my mind, but I must admit: the gold bugs are having a good moment.
As of October 22nd, gold was trading at $4,067. That’s a 48% increase from one year ago when it was $2,744.. Congratulations, gold bugs. Especially to my friend Michael who has been telling me to buy gold for the past 10 years.
It’s been an amazing run. If you had put your money into gold at the beginning of the millennium, in January 2000, you would have ended up with more money than if you had invested in the S&P 500. A lot more. About three times as much, as you can see from this chart.
And remember: the S&P 500 represents real businesses. Companies producing goods and services, generating profits, paying dividends, and giving you a claim on future cash flows — cash flows that are much larger today than 25 years ago. Gold, on the other hand, is — as British economist John Maynard Keynes put it — a barbarous relic. It produces nothing. It just looks shiny.
Yes, it has some industrial use in electronics, and millions of people all over the world wear it as jewelry. But economically speaking, it’s just a shiny object.
So how does this shiny object — which does nothing except sparkle — outperform one of the greatest bull markets in U.S. history? It boggles my mind.
First, let me tell you why I prefer stocks.
The reason I prefer stocks over gold is simple: cash flow compounds.
When you own productive assets:
Companies earn profits.
They reinvest those profits to grow.
They pay dividends or buy back shares.
Your slice of the economic pie keeps expanding — even while you sleep.
That compounding effect is relentless. It’s like planting a tree that keeps bearing fruit year after year. Gold, on the other hand, just sits there. It doesn’t grow. It doesn’t reproduce. It doesn’t innovate. You’re entirely dependent on the next buyer being willing to pay more for it than you did.
That’s not investing. That’s speculation.
I admit it, gold does have a legitimate purpose — it serves as insurance against currency collapse or geopolitical disasters. Imagine for a second that you live in a country with high inflation, like Venezuela. If you have gold, you don’t care that the local currency, the Bolivar, collapses. You are good, you have gold.
One possible reason for gold’s recent rise is central banks. Many of them have been buying gold as part of their foreign exchange reserves. Traditionally they buy U.S. dollars, but some of them are switching to gold because their relationship with the U.S. has been deteriorating.
The Chinese central bank is one of the biggest buyers. I suspect because of the economic war they are having with the U.S., they’d rather diversify away from the dollar and into gold.
The Russian central bank is doing something similar, they are trying to reduce exposure to U.S. sanctions and geopolitical risks.
Another factor is accessibility. It has never been easier to invest in gold. In the past, you had to buy physical coins and store them under your mattress or in a safety deposit box at your local bank. Today, you can just log into your brokerage account, click a button, and buy gold ETFs, the more popular are GLD or IAU. They’re liquid and trade just like stocks. Anyone can invest in gold in a few seconds.
So — after all this? Have I changed my mind?
Not at all.
Gold is still a shiny metal with no cash flow. Its value doesn’t depend on future earnings — because there are none. Its price is driven 100% by sentiment. Call it “animal spirits,” call it faith. I prefer to call it the greater fool theory.
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