When people invest their savings in something, they assume the rates and the cost to be relatively fixed and unchanging. No matter how theoretically sound this concept might seem to you, for practical purposes, it is never so. And yet, people want something to measure their wealth and money’s worth against. This is where gold started becoming an extremely traded commodity. The reason was obvious – gold doesn’t have that many uses and yet, its demand remains more or less fixed.
People have always favoured gold when it comes to savings and assets. What is the reason for this? What is its most striking feature that gives it an edge over others? Other metals continue to be popular like American Silver Eagles, but gold’s dominance remains unchallenged. There are many reasons why gold is and should be preferred. The following points will explain it up –
- Stability – Historically speaking, gold has remained relatively stable as an asset and investment over time. When people say that certain asset has gained in modern times, they are a bit wrong because even though the asset has gained, the dollar fell, which brings you back to square one. There are times when dollar has made a small comeback, but if the bigger picture is seen, dollar has been on the decline. Gold doesn’t suffer from this problem.
You can obviously not take gold as an exchange medium. However, since gold has remained relatively stable throughout, you can determine the performance of other commodities by taking gold as your base. After gold, the best metals are palladium, silver and platinum. But their values are still not independent from the market and other factors because these metals have their industrial uses, as well. Gold doesn’t.
2. Overvaluation of Stock and Bonds – Bonds are overvalued because interest rates are so low that no one is even interested in investing in them. Even at times when yields are higher than the current ones, they should be higher still, and bond continues to remain overvalued. This is because there is too much uncertainty regarding flat currencies in today’s world. Venezuela recently devalued its currency (by almost 40%) and experts suggest that US should try the same way. After all, devaluation isn’t something new to the US.
Same goes for stocks which are overvalued. If you go by stats, S&P 500 trades are considered to be safer and fantastic buys and yet, even they aren’t as promising. At times when the earnings growth is almost negative or barely adequate because of share repurchase and cost cutting, the trailing earnings of S&P 500 are almost 20 times.
Even the dividend yield is lower where trade value is almost 4 times the book value. If shares are cheap, their value always stays just above their book value which is not the case here.
The prevailing opinion regarding gold is pretty negative, which means that, people should sell their overvalued stocks and invest in gold.
Author: Brenda Lyttle