Don't forget that gold is not a risk -free investment

The amazing increase in gold prices reminds us of how primitive our people are, especially what we call active traders. But this increase should also remind us of the importance of using the more developed parts of our brains. Remember, there is no logical reason why gold, which rose by 50% this year and reached nearly $ 4,000 an ounce on Monday, should have intrinsic value. The price tends to rise if the world seems volatile – it is presumably a ‘safe haven’ alternative for the dollar. But why does gold have this status? The dollar can be used to buy things, and the stock market allows ownership in profitable businesses. Effects promise that payment is flowing. But what does gold offer? Golden declines and the dollar are rising amid political uncertainty in Washington and Paris Gold has some industrial uses, but it seems that its attraction lies in its brilliance and rarity. If times are uncertain, the more primitive parts of our brain find these characteristics compelling. We must resist this impulse. There is no guarantee that gold is safe as an asset. Like any other commodity, its prices are very volatile, and this contributes to your investment portfolio. In fairness, investors also turn to gold because of long history as a currency. If it seems that the major modern economic experiment, with its components of markets, secure debt and paper currencies, may fail or get a little complicated, investors are naturally inclined to turn to the original value store, which is gold. Good performance over decades It is certain that gold has performed well over the past six decades, even compared to the Standard & Poor’s 500 index, and especially compared to ten years of US Treasury bonds. But nothing is risk free. The price is very volatile, and investors have received good returns because they took the risk. Gold does not even offer a consistent hedging. It is true that the performance of gold in some markets may be better than the performance of stocks, and sometimes it is negatively related. But that doesn’t mean it’s a more stable asset. If markets change, there is no guarantee that gold will maintain its value. During some of the worst parts of the financial crisis in 2008, the price of gold fell by 6%. Why do investors flock to gold and bitcoin? As investors want to say: Maybe this time is different. In the end, there are good reasons to be concerned about the markets right now. Unlike in 2008, inflation is a serious concern in the US: There are signs that it could rise as the Federal Reserve begins with a cycle of interest rate cuts. It can aggravate inflation. The risks are clear there, but gold is no exception, as this renewed concern about inflation and partisan commitment to a future of high debt for America is the prospects for effects far from risk -free. It is true that nothing has been beating US Treasury (except short-term bonds) over the past six decades for investors looking for a stable, certain returns. But this situation may not last long. Meanwhile, the stock market seems to be in volatility, with investors, and even Jerome Powell, chairman of the Federal Reserve, which predicts that stocks are expensive and that a correction is coming. It is not necessary to talk about cryptocurrencies. But again, none of this makes gold a low-risk alternative. Investment in gold is acceptable if you enjoy speculation and believe it will rise further. But when the argument is: “It’s a low-risk asset that is also better than the market,” it makes me skeptical. Both of these things are not true. Any investor who thinks so will certainly be disappointed.