Gold may glitter, but it doesn't do much more

ByABC News
November 17, 2008, 3:48 PM

— -- Q: What do you think about investing in gold?

A: Gold is a tempting investment during uncertain times.

When you see the value of your home and stocks decline at the same time, as occurred this year, there's a temptation to buy something both tangible and precious.

Investors who just can't stand the idea of falling asset values take heart in the fact that gold is a tangible asset that has been used as currency for centuries. Plus, gold has an attractive quality in that it's somewhat rare and treasured for its beauty. And that's a big reason investors may stockpile gold when they fear the economic system cannot be trusted and is nearing collapse.

Gold gets an extra bump when the value of the dollar falls. What happens is that investors who get paranoid and fear the dollar will lose all its value no longer trust paper assets and run for the cover of gold.

But then something funny happened. Gold crashed from $100 a share to $79 in September. The biggest knock against gold was strength in the dollar, caused largely by foreign investors buying dollars to invest in U.S. Treasury securities.

What about longer term? The extreme volatility in gold this year illustrates why I question the long-term rationale of investing in gold.

If you're truly worried about economic collapse and the end of the global economy, why mess with gold? If you're truly that bearish, wouldn't you be better off stockpiling beef jerky, bottled water, fuel and guns? Gold probably won't help you if things are really as bad as the super bears would have you believe.

Second, gold, like all commodities, has an innate problem. Commodities don't generate earnings. Base metals are only worth what others will pay for them. If you buy shares of a company, or better yet dozens of companies, your ownership gives you a claim to the increasing revenue and profit generated by the company.