Gold is a Crap Investment—Unless...

About gold as an investment, Barry Ritholz said it best:

This is not to say gold is not affected by Macro issues. But that is very different than saying Gld has a fundamental value, an intrinsic worth. It does not. [. . .] Gold is not, and can never be, an investment. It has no true intrinsic value, no cash flow, no earnings, no coupon[,] no yield. What people call fundamentals are nothing more than broad macro analysis (and how have your macro funds done lately?). Gold is the ultimate greater fool trade, with many of its owners part of a collective belief theory rife with cognitive errors and bias. [bold emphasis in the original]

Ritholz is absolutely right: Gold does not have cash flow, earnings, coupons, or yields. Unlike, say, a factory, or a piece of land, gold cannot produce anything; gold just sits there, inert. Though it has a handful of industrial applications, and of course can be used for decoration, gold has no practical use. You can’t eat gold. You get caught in the middle of the Sahara with a ton of gold and not a drop of water? You’ll be the richest corpse in no time.

So just like Ritholz says, gold is not an investment—unless.

Unless what? Unless the fiat currency itself becomes worthless.

It is this possibility—that the novel, experimental and reckless measures being taken by the central banks of the major reserve currencies might well end up debasing the dollar, the euro and the yen to the point where they are as worthless as Weimar-era Deutsche marks—that makes mincemeat out of Ritholz’s perfectly sensible analysis.

The central banks’ screwing with the fundamentals of fiat currency is why gold is a good investment. At this time, in this era of “heroic central bank measures”, gold is probably an essential investment, considering the general direction the global economy is headed in.
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