Gold vs Real Assets

A lot of wealthy people I talk to are building up sizable gold assets in their portfolios. They look at the long term fundamentals of the US economy and don't like what they see. So they are accumulating gold as both a hedge and to some extent a capital gains play. Here's a price chart of gold over the past five years:

Gold price chart
You can see that those who have owned gold for the past five years have made three times their money. And I've heard gold bulls say that $3000/ounce is their price target. So that's 2.5x where it is now.

We've had a number of conversations about gold in the comments to this blog, but I've never posted about my thoughts on the subject. So I thought I should.

I'm not a fan of gold. It does not produce any income. It is not a productive asset. It does have value in many commercial uses but that is not what drives its fundamental value.

Gold is valuable because it always has been. It has been used many times over the years as a backstop for currencies under a monetary system called the Gold Standard. The theory is that when investors lose confidence in a government's currency, they can exchange the bills for gold.

So investors have been trained that in times of crisis, you want to own gold. And if you look at that five year gold chart, it sure looks like more and more investors want to own gold right now.

I'm not sold on gold. I don't really know what I'd do with a bunch of gold. On the other hand, I do understand the need to have a portion of your net worth in tangible assets that you can touch, control, and physically own.

I prefer real assets like commercial real estate and land. These assets can be scarce, you can own them outright, you can touch and feel them, and most importantly you can generate income with them.

Let's say you had $1 million of cash in the bank that you wanted to use as a hedge against a major financial disaster. You could purchase gold bullion and take delivery of it and put it in a safe at a bank. Or you could purchase a building with a number of apartments for rent with it. The gold will sit safely in the bank earning you nothing. A building purchased for $1mm could produce something like $100,000 per year in rental income if you buy it right.

If the financial disaster was really terrible, your building might go down in value, but as long as you own it outright and don't have a mortgage on it, there is no reason that you'd have to sell it. You could continue to generate the $100k per year of income assuming rental rates hold up. And generally speaking, real estate will maintain its value over the long haul.

The same logic applies to productive land (ie farmland). If you buy it right and don't borrow against it, land will produce income regularly and should retain its long term value.

So that's my case against gold and in favor of real assets. I think it is very smart to have a percentage of your net worth in non-financial assets (stocks, bonds) and non-cash assets. We all saw what can happen with the financial system has a meltdown. And it could have been a lot worse had the government not stepped in.

So if you have a nest egg that you want to protect, think about putting some non-financial assets into the mix. But I'm just not sure that gold is the best way to do that.


Comments (Archived):

  1. Louis Berlan

    I agree with you regarding gold.However, it is difficult to find a non-financial, non-cash asset that comes in “small denominations”. If you don’t want to invest at least $200k, land/real estate is impossible, whereas you can buy an ounce of gold.

    1. fredwilson

      so truei am kind of fascinated by the stories of people buying real estate in detroit for nomimal amountsi wonder if something like that would be smart for those with smaller nest eggs

      1. Louis Berlan

        I agree, it’s a fascinating idea.I half expect to see funds of Detroit real estate to invest in.

      2. Scott Yates

        I don’t know if it’s possible to buy in Detroit. The last story I read was that the city was pulling out the street lights and that the natural wildlife of the area was returning to what once was the city.A better investment along those lines is probably land with water rights in the West. A few people may like gold during bad times, but everyone needs water every day, and those water rights are only going to get more valuable as they become discrete from the land rights.

      3. riffer

        I don’t know, there are a lot of ghost towns out West …

      4. aboer

        Fred,I am completely on the same page. One of the few things I remember from my investment management class in B-School is that Gold was basically the worst possible asset class over a 150 year period. Although a put on GLD is one approach, I have been buying more and more from an exchange traded fund that is a double short on gold. I have been losing money, and buying more.My gut, and I am completely what The Economist calls “a punter” here, tells me that gold is way overvalued against other asset classes including other commodities, due to political, historical, and emotional factors — especially all of these historical notions that gold is a currency as well as a commodity. A tulip is just a beautiful flower that grows year after year, and gold is just a shiny and flexible conductor that doesn’t rust.Its funny that you think it is rich people that are running to gold…my instincts say it is now middle income folks chasing a bubble and outsized returns…who are pumped up by panic, and a Ron Paul/libertarian ethos. Feels to me like being a “gold bug” is today as much a socio-political statement as a investment philosophy. Kind of like the folks who “got it” during the dot-com bubble.As usual, I expect it will be the rich folks who head to the exits first — and it will be middle America who is stuck with a pile of attractive, but significantly devalued pieces of metal.

    2. Chris Clark

      Curious, why can’t one invest in land for say, $50k? Are there associated costs that make it financially infeasible at such a small scale? Poking around, there are certainly plenty of parcels available for that amount. Is there some reason it doesn’t make sense as an investment at that size?

  2. Jonathan Nation

    good thoughts, here are two more I might add:1. the “wealthy people” you talk to … how many of them made their initial wealth by investing in stuff as opposed to either building a company or being a high paid employee?2. when you own stock in companies – many of them have real assets that you indirectly own a position of. McDonnalds & Six Flags are huge land owners. Other companies own machinery. Part of owning stock or equity is the real assets within those companies.

    1. fredwilson

      the problem with owning stock in companies based on their assets is you are also taking on their liabilities, known and unkownthere is something about owning assets outright (without debt) that lets me sleep better

      1. Jonathan Nation

        my point was more along the lines of “if you just own stock, you do have some hard assets coverage in there”I spend a lot of time with Real Estate Investors and that is just one element of stocks that people with a firm bent that way don’t grasp.I would not base any investment strategy only on what hard assets a company owns, but the point of “you do have ownership interest in hard assets when you own a broadly diversified stock portfolio” still stands.

        1. Druce

          true, but in many cases the hard assets depreciate or become obsolete.if you own Intel, you own a gigantic investment in chip-making factories – but they will all be obsolete in 4 years. You couldn’t liquidate the factories for anything meaningful, the value is all in Intel’s brand and competitive position.In fact, a good, well-managed brand like Coke can be a better inflation hedge than hard assets, because that’s the part that doesn’t need to be replaced (although it does need investment and proper care).

      2. Alexander Ainslie (@AAinslie)

        Stocks are meant to be sold, not bought. I’d rather be the issuer of the paper. :)I agree with your views Fred on owning assets outright. I don’t believe in debt, mortgages and the like. Never used them, ever. Always believed: If I can’t pay for it, it just ain’t for me. #LowBetaLiving

    2. JLM

      Not to put too fine a point on things, when companies own assets the real issue is the market rate of return on those assets.A corner on a high traffic intersection has a different “cash flow” value if it is used for a McDonald’s, a Putt Putt, a convenience store, a bank or a local BBQ restaurant.And, yet each sits on the same acre of land. It is the business process which is plopped down on the acre which really determines the value.

  3. awilensky

    Gold is the least spendable asset. With the one exception of a hedge, in large quantities or as an ETF, small amounts of gold for the individual has negative value. Go and buy 5k$ of 1 Oz Canadian maple Leaf coins, they are beautiful, heavy, mesmerizing, 99.98 % pure. Bring them home to the States and sell at spot price, you will lose 1.3% in assay and verification fees. Even if you sell to a coin dealer, you get no more than spot.When you cross from Canada into the US, if you are found to be carrying +10K US$, you must fill out a tax form. I came across the border in the 90’s with 30K in Maple Leafs and the Customs agents didn’t blink.Invest in Gold if you believe in the apocalypse or have more than 500k to hedge. anyone else, fuggedaboudit.

  4. Boondoggie

    In a real financial crisis you could find yourself with a building with empty apartments and a higher tax bill. Much like homeowners now that are underwater on their mortgages but see county tax valuations actually increasing on their homes because the government needs their money.

    1. fredwilson

      good point about taxesthere is no tax on gold that i am aware of

      1. Jon Knight

        Incredibly, some states do assess a sales tax on purchases of gold, whether bullion or coin. Plus you may lose as much 5% of your gains to the dealer. In NC that would mean you need to see your market rise by 12% JUST TO BREAK EVEN.Gold seems to be in bubble territory, I doubt it’s a good ‘long-term’ investment. Nevertheless, I’ll probably add a little more during this next correction. My work shows gold has a little more ‘umph’ before it tops. Still, when it’s time to sell, it’s time to sell.Gold can be as good a money-maker as anything else as long as you don’t fall in love with it. Treat gold trades like any other trade and just remember: Don’t be caught running for the exits at the same time as everyone else. Greed kills.

  5. Jack Bloom, Pace

    I just formed a New York Meetup group for companies to present to Early Stage Investors. Fred please send someone!… Jack Bloom, Professor, Pace University, Entrepreneurship and Corporate Finance.

  6. kidmercury

    hooray! wow, thanks boss! as a gold bug i really appreciate today’s post on gold. 1. if gold isn’t money, what is? money needs to be non-perishable, divisble, a commodity, limited in supply/difficult to counterfeit, portable. what meets those requirements? time and time again, the market has chosen gold. 2. alan greenspan wrote an essay called “gold and economic freedom.” i hope folks will read that essay (free on the web). remember it was written by alan greenspan. it explains the link between gold, capitalism, the idea of economic freedom. 3. gold is rising because there is distrust of government money. all fiat money, meaning money not backed by a commodity and whose value is entirely subject to whatever government says it is, has always resulted in theft by hyperinflation. always. you can research the history of fiat currencies to confirm. also, more correctly, gold doesn’t rise. it is everything else that is falling relative to gold. 4. fred’s point on real estate is somewhat legit IMHO, in a “all hell breaks loose” scenario lots of people like real estate. however, see the requirements for money in point #1. also, this recent bubble was in real estate, so market forces will try to push that bubble down (government intervention will of course counter the market’s natural attempt to correctly price assets, thus resulting in a perpetuation of the problem). so, there is the bubble issue we are coming off of that is specific to real estate in this current monetary crisis. VCs should all get together and create their own gold-backed currency. if you guys do stuff like this, that will open the door to a whole bunch of other stuff. it will also help you guys identify proper valuations. with all this government money printing determining the right valuation goes from difficult and requiring skill to virtually impossible regardless of one’s VC talent. VCs have had negative returns for the past decade. this is not because they went dumb for an entire decade, but because government has so distorted the money supply so as to make proper free market analysis far more difficult than it should be. the cheap money obscures real value. gold does not allow inflation as easily and thus that problem is less prominent. also there is the issue of the gold standard and macroeconomy…..the US has gone from a nation of one income households with a positive savings rate to a two income household with a negative savings rate. most you youngsters are probably too young to remember but gas used to cost less than $2 a gallon. and if we go way back to the 60s….we’re talking under a $1 in the USA, folks. the reason is all this cheap, counterfeit money basically robs people by devaluing the currency. the current world is also one in which all money is lent into existence. it is hardly surprising that such a system lends itself to perpetual debt crises (for which the proposed solution is more bailouts — i.e. more debt, something that cannot be done under a strict gold standard). gold is the market disciplining the government. fiat is the government discipling the market. fiat can work, but only to the degree that government works. 9/11 was an inside job,kid mercury

    1. andyswan

      I saw gas in the 70’s cents in 1997.Your post is spot on. If gold isn’t money, what is? It’s all just a claim on the future productivity (with mutual consent) of others.I’d rather have the promise of a man I trust than any of it….but at least with gold I don’t have to trust 536+ idiots in DC to maintain its value.

      1. Tom Bakalis

        536+ idiots in DC do control the price of gold. If they decide to strengthen the dollar watch what happens to gold.

        1. Jose Paul Martin

          I don’t think the price of gold can be controlled by just a few idiots in DC. You’re talking about a “currency” that’s accepted world wide… if everyone in the world (outside US) decides that US currency is worthless… then you’re going to have a lot of trouble in DC!It would be good to take a lesson from History… the fall of the Roman Empire didn’t just happen overnight… I guess the tipping point was India.. when they refused to do business with the Romans, because the Roman Denarius lost its value (it was supported by Gold).I really recommend reading this article by Chris Weber. Puts some light on the History of Money…

          1. ShanaC

            there are so many missing things in that essay- class and what they buy- and what the top classes were able to buy. We’re pretty sure that fiat money allows room to buy more stuff. It may also cause class problems which may cause societal downfalls.

        2. Aaron Klein

          That’s technically incorrect. 536+ idiots in DC control the value of a dollar. If you think about the value of gold in relation to dollars, it is true that it LOOKS like they control the price of gold. 🙂

      2. ShanaC

        If it is a claim on future productivity, why not use actual productivity and use say- wheat as a backer of currency?

  7. Jack Bloom, Pace

    I think the primary reason to own gold is that it is not correlated with other assets and seems to perform better than other assets in downturns. It is a form of insurance. However, it has had a large run-up recently which reduces it’s value as insurance, and it did decline during the financial crisis which shocked gold owners as people shifted to treasury bills. Gold is not backed by the power (read laws, tax authority, miliatary power) of any government. Gold has not kept up with inflation as expected. There is too little of it to serve as a currency or backing of a currency ever again. However, it acts as a reasonablely non-correlated insurance policy. Unlike real estate it is also liquid – which even apartment buildings are not. Further during the financial crisis, apartment building and other commercial properties declined in value as rents went down. So if you want a liquid, non-correlated insurance policy you may try gold. However, with the development of newer insurance policies such as credit default swaps you may try this – however, most individual investors cannot access this market.

    1. JLM

      From a purely financial and investment perspective your observation that gold is not correlated with other assets and thereby acts like an insurance policy is the only intellectually sound reason for buying gold in times of crisis.Insurance is a tool which requires one to know when to get in, when to get out and when to self-insure.The rest of the logic as it pertains to gold in the marketplace today is purely emotional and does not stand up to the rigor of investment or financial analysis.Of course, I could be wrong. Maybe Glenn Beck and Michael Savage are in fact Registered Investment Advisors and have been hiding their light under a basket all these years.

  8. David Semeria

    Owning gold is also a bad idea because it’s a very selfish thing to do.If our forefathers had invested solely in gold we’d all be living in tents.Putting money to productive use is not only good for your personal returns, it’s almost an obligation in an ethical society.Gold owners never shared their sweets when they were kids.

    1. fredwilson

      that’s the point i wished i had madei want to invest in productive assets and productive people

      1. kidmercury

        pfft. when the dollar is destroyed, and when gold owners have preserved their wealth (in fact increased it as this crisis will be deflationary in terms of gold), and when gold owners are thus the only ones with the capital to build productive businesses, we will see the moral supremacy of gold. certainly relative to the corrupt stock market, corrupt futures market, corrupt options market, and corrupt fiat currency market.

        1. David Semeria

          I love the kid! So when the world collapses and the gold owners own all the ‘wealth’ – who are they going to sell it to?Under that scenario a potato farm is the best bet.

          1. kidmercury

            it is always the same throughout history, whoever is looking to store wealth will store it in gold. if an individual is looking to accumulate and store wealth so as to build a better life for him and his family, they will have demand for gold, and will trade labor for it. in this way, those who have the gold, will make the rules in the new world order.

        2. raycote

          The differential productive value of gold or paper is a red herring. They are both fundamentally a store of value that maps on to the real goods and services that under pin their value. Either can be used for speculative or productive investments.The value of gold or a gold standard is to create a physically fixed or at least a somewhat enforceable and knowable relationship between the units of stored value and the tangible goods and services that under pin them.In other words, a gold standard creates a floor or backstops against the endlessly complex array of neo-cheating political, banking and market based institutions whom would otherwise exercise creative legal counterfeiting, inflationary paper asset creation out of thin air, that robs the rest of us by diluting the value of our hard earned money stores.That is the whole game for central banker. Inflation is the pump, the engine with which they fuel their boat. They get to be the entry point for all that new inflationary money entering the system. They get to leverage both the on hand equity and the value of the inflationary lag time.Central banking, at least in its present form, is simply a new form of transnational feudalism.If we were playing a game of monopoly we would not allow the banker this much control over our collective capitalization mechanics but here in the real world where all we have to lose is our life’s savings, well here, we all seem to be willing to let them have at us!

          1. ShanaC

            The only reason it is fixed is because you can make transportable stuff out of gold. You can in fact, insert gold into microchips, and turn it in jewelry, or a sculpture. The underlying value of gold is not tied to the object in and of itself, whereas with fiat money, it is.Gold is otherwise a commodity good. Much like wheat, just holding onto it, allows you to do nothing. Remember that. There is no real intrinsic value to gold unless a) you give it someb) you apply some service to it- which then you really put the value of the service to the gold.This is what happens when you’ve done metalworking…

          2. raycote

            Sorry this paragraph was particularly inarticulate of me.”The value of gold or a gold standard is to create a physically fixed or at least a somewhat enforceable and knowable relationship between the units of stored value and the tangible goods and services that under pin them. “I did not intend to imply that gold has some kind of intrinsically fixed, utilitarian, industrial commodity value in and of it self(well it has a little). Just as fiat, paper money, has almost no self contained, intrinsic, utilitarian value, instead drawing value from it’s role as a symbolic stand in for the real goods and services that it represent, so gold can play the same role, as a symbolic store of value, stand in, for real goods and services.The unique value of gold as a representative, symbolic stand in, for the value of collective social productivity, derives from it’s relatively fixed finite supply. Unlike fiat, paper currencies/assets, which are open to endless inflationary expansion at the political whim of governments and other unregulated entities that continually create illegitimate, debt based, liquidity which has little or no fixed relational value to the aggregate production of goods and services which they purport to represent.These paper based inflationary mechanisms leave all but the government, the investment banks and other sundry, neo-cheating, private investment hedge fund inflation skimmers, on the outside looking in. It is a huge hidden form of feudal taxation dampening the productive/consumptive cycling of the whole system.Even worse, these paper liquidity, inflation skimmers use the value they have looted from the rest of us, not to invest in meaningful production, but like typical criminals, they return to the scene of their crime to reinvest in more leveraged, speculative, paper liquidity inflationary behavior. The political-will required to put meaningful financial industry regulations into place is completely lacking. This is, I think, as a result of the fact that the average citizen has a hard time visualizing the mechanics of money and credit systems. We need a MoneyVille online game that educates us all via role playing all the different stakeholders that constitute this whole monitary-credit-dance thingy.This ongoing monetary inflationary skimming has led to a complete disconnect between paper assets and the real economy’s underlying, aggregate, productive output. Mountains of paper assets, all trying to find some way to out smart other paper asset holders in order to secure some enforceable claim linking their particular inflated paper holdings to an ever shrinking landscape of real tangible productive assets.Gold and it’s fixed finite supply, act ass a zero sum monetary pivot, a stake in the ground that limits the ability of governments and other financial industry agents to create fiat, by decree, liquidity at the expense of all the other stakeholders in the non-inflationary, productive real economy.This is of course, by necessity, over simplified. The history of financial innovation is the evolutionary backbone of modern political economy. We are not at the end of history as regards workable monetary and credit theories. A simple gold standard is probably not workable today. But some system of monetary value based on a basket of more tangible commodities or other scheme that limits feudal taxation behaviors by all the would-be inflationary skimmers is desperately needed.The sad truth, IMHO, is that no sooner had the rising industrialists class seized power from the Crown before the central bankers managed to steel it back and Crown themselves as the new feudal lords over the emerging landscape of industrial production.

      2. Andy1051

        Depends what you mean by “productive”. Lots of the businesses VC’s invest in these days do nothing to help people or society. In fact, you could argue that businesses like Twitter cause a reduced attention span and reduce productivity.

        1. fredwilson

          or you could argue that it focuses attention and increases productivity

          1. Andy1051

            Yes, may be true in specific cases, but from what I have seen this form of communication is not good for our kids. It is an extension of our instant gratification culture. It gives the user a form of satisfaction, but in the end nothing has been accomplished. (Kind of like me posting this message.)

          2. fredwilson

            if they get a job, buy something of value, or learn something new, thensomething important has been accomplishedmy kids have done all of that and more via social media

        2. jarid

          There’s a great article in Wired about Clay Shirky’s new book, Cognitive Surplus, where he “argues that the time Americans once spent watching television has been redirected toward activities that are less about consuming and more about engaging—from Flickr and Facebook to powerful forms of online political action.”

      3. ash bhoopathy

        speaking of which, i’m excited to hear what you have to say about learning new things at the vc education summit on wednesdaymy personal bias re: gold, people who invest in gold (or anything for that matter) over ideas and teams to fundamentally make the world a better place, create new jobs, and see communities prosper don’t really deserve the opportunities to invest somehow “hoard” a scare resource because of noble birthright or privileged upbringing rather than sharing it is unabashedly evil. that’s not socialist rhetoric by the way, i think it’s important that entrepreneurs are motivated through capital.

    2. andyswan

      If our forefathers had ignored gold there would have been no settlements west of the Mississippi.

      1. David Semeria

        Really? I didn’t realize all civilization stems from a gold rush….Also, digging for gold is productive, just owning it isn’t.

        1. Dave Pinsen

          Exploration in what is now the U.S. preceded civilization, and exploration was driven mainly by the search for Gold.

          1. David Semeria

            This is fun! Because you can eat gold, right?

          2. Dave Pinsen

            Civilization in the Old World required a surplus of food, as all civilizations do. But the search for gold motivated much of the exploration of the U.S., as you know.

          3. David Semeria

            No worries, Dave – and don’t think I didn’t notice the sneaky edit :)Survival always comes first. But, fortunately, most of the world is well past that point.

          4. Dave Pinsen

            Nothing sneaky about that edit, David. ;-)”Survival always comes first. But, fortunately, most of the world is well past that point.Let’s hope it stays that way. But this news item seems inauspicious.

    3. Jose Paul Martin

      If our forefathers had invested solely in land… we’d all have houses but no one to lease to!First there was gold, then it became money. Money changed hands, a means for exchange. Exchange of arts, products, services… now that’s productive! If the only thing we needed was land and real estate.. then imagine how much of stuff would be created?I think that’s a one sided justification… you need real assets, be it gold or real estate.

      1. David Semeria

        I never proposed that land be the only alternative to gold.Just about every asset class (including derivatives) leads either directly or indirectly to investment in the real economy.The biggest exceptions are those based solely on their scarcity – gold, fine art, stamps etc.

    4. Patrick Dugan

      If we see a hardcore deflationary impulse where everything is getting liquidated harder than in 2008, and gold does dramatically “less bad” so as to make a higher low than the one it made in 2008, I’d reckon that’s the buying opportunity of a generation.

    5. CJ

      Actually the Constitution states that only gold and silver be legal tender.It has never been amended, so it’s technically still law…just ignored.The forefathers knew that you should never give a group of people the ability to create money out of thin air. They understood hyperinflation *very* well….Just look up “Not worth a Continental”.Gold has, and still is, the ultimate currency.

      1. Druce

        Where does the Constitution say that?It says that Congress shall have the power to coin money and regulate its value, and says nothing about currency having to be backed by gold.It does say that the states can’t make anything but gold or silver legal tender, ie they can’t print their own scrip.

        1. kidmercury

          states are accepting federal reserve notes as payments and using them to make payments. federal reserve notes are not gold and silver backed anymore but states are using them in relation to their debt issuances and purchases. this violates article 1, sections 10 of the US constitution.congress also gave the power to regulate money to the federal reserve via the federal reserve act of 1913. but to overwrite the constitution like that requires an amendment, which has not happened. thus the current monetary policy is entirely unconstitutional and in violation of article 1, section 8 of the US constitution.

          1. Druce

            I think you’re stretching LOL … Article 1 Section 8 says Congress is in charge of money, but doesn’t mean Congress has to personally strike the coins, they can delegate under rules they set up in creating the Fed.Article 1 section 10 says the states can’t make something other than gold or silver legal tender, and they haven’t – Congress has.

          2. kidmercury

            1. congress has given all control of monetary policy over to the federal reserve. not just printing coins, all of monetary policy. the founding fathers warned against central banks, andrew jackson worked to eliminate previous central banks. the entire idea of central banking is unconstitutional as monetary policy was assigned to congress.2. the states accept federal reserve notes for payments due to them. they do not accept gold and silver coins. in doing so they are using their tax authority to create legal tender out of something other than gold and silver, in clear violation of article 1 section 10.

  9. andyswan

    Portability, defensibility and anonymity are three points you’re missing.1. If shit hits the fan, I can put $1m worth of gold into a suitcase. I can’t do that with an apartment building.2. I can defend my own gold with my own gun. If the aggressor is another citizen or a foreign government, my government will defend my property rights on the apartment building. But if the aggressor is my government, or my government is neutered/ineffective, I really have no way of effectively defending anything that isn’t small and portable.3. It’s much easier to “nationalize” land and real estate than gold (or tax them heavily in order to buy the votes of the lazy). No one has to know I own gold, or where I keep it. p.s. keeping $1m worth of gold in a bank is useless….you’ve got to keep it unregistered, anonymous and well hidden. It can be done.I think your argument still holds a lot of water when talking about currency devaluation or “normal” scare cycles. It’s just not a war-chest argument for me.The best hedge against a massive downturn is a productive mind!

    1. fredwilson

      i’m totally with you on that last line andy

    2. LIAD

      Super cool comment

    3. agustingonz

      if “this shit hits the fan” then “portability” won’t matter much either when the masses revolt. you will need a frickin presidential security team to keep you stash safe. (per Marc Faber)

      1. andyswan

        Ahhh the value of an understated lifestyle :)In any event….”Catch me if you can” works better with a brick of gold than an ACORN occupied apt building 🙂

        1. agustingonz

          true that Andy! agreed.

    4. Tom Bakalis

      $1M in gold is not as portable as you may think 🙂

      1. andyswan

        60 lbs isn’t even a workout 🙂

        1. Alexander Ainslie (@AAinslie)

          Gold transport logistics is a liability.Alternatives? You can sink $10 million into an investment grade painting that weighs less than your MacBookPro and have it FedEx’d anywhere in the world with guaranteed delivery before 10:30 am (or your don’t pay shipping!). Additional upside: no SEC reporting etc.Andy, Have you tried taking a single bar of gold through airport security?! :-))

          1. andyswan

            I assume that with 60 lbs of gold and shit hitting the fan, there would be any number of ways to avoid Joe TSA. 🙂

          2. Patrick Dugan

            I like how you think brother. I live in Argentina and I’ll tell you that if something like that happened in the US, bribery would probably be an option in a lot of cases. However, the cultural differences suggest that the US will have a lot more automated security and surveillance in place, and you’re more likely to be dealing with an officer that won’t take a bribe and will report you for it.

          3. andyswan

            Have you ever tried to bribe an officer Casablanca style with 1/200th of a painting? 🙂

          4. Erica

            We stopped using FedEx after they “lost” a $3000 load balancer that was in transit to us. The phone rep said this was usually a case of an employee stealing it. (Lovely.) $100 paid because we checked the “insurance” box. They won’t pay more than $100 even if you check the box.-Erica

          5. Alexander Ainslie (@AAinslie)

            Erica, Sorry to hear of the loss.The art loss risk is offset via having a solid specialist (Fine Art) insurance policy. FedEx only insures for $500 on intl. shipments. Right tools for the job. Fedex does one thing well – ship. They are not an insurer.In 27 years of punting had only one mishap where something from Tokyo got punctured in transit. So beating casino odds, I guess.

          6. ShanaC

            I’ve taken art through airport security. Art handling is not so simple.

        2. Jose Paul Martin

          If prices keep on rising… it might just be 30lb!

    5. David Semeria

      I can defend my own gold with my own gun.Why not just order a solid gold Uzi and kill two birds with one stone?

      1. andyswan

        This is turning into a cinemax movie and I love it!

        1. Mark Essel

          I’m seeing the screen play come together. Andy, you Howard Lindzon, Dave Pinsen, and Kid Mercury would be the main cast set in a post American mad maxish future.

      2. Elie Seidman

        LOL. Love it. You could have the bullet shells made out of gold as well and just make sure to pick up your used casings. When the sh*t goes really bad, it comes down to guns, bullets, gasoline, motorcycle (to get out of dodge), water purifying tablets and some land you can grow food on.

      3. mcbyrne

        Solid gold is actually very soft and would not perform well in this use case.

        1. David Semeria

          Well-spotted mcbyrne.

        2. Dave Pinsen

          You could use it for plating, but it would be more difficult to smuggle, presumably, than gold in another form. Andy and David remind me of something else though.Back when I was a kid, I remember reading about a certain overseas Chinese family that produced a lot of the sort of Kung Fu movies they’d show on Saturday Afternoon TV. I think they lived in Singapore before World War II, and before the Japanese invaded they bought gold and jewels with most of their liquid wealth and buried them somewhere. Then, after the war, the dug them up and were back in business.Another thing this reminds me of was the story in the bizarre biography The Orientalist about how the subject’s father, an oil man in the Caucasus, fled the Communists with stock certificates sewn into his suit. He ended up in Berlin or Vienna, and made a living for a while trading those stocks on a gray market (among participants who thought the Bolshevik takeover might be short-lived). Eventually, when everyone realized that the Soviet Union would have staying power, those securities became worthless.

      4. Mark Essel

        That brought a tear of joy David. Thank you ;)heheh. Almost Luau time.

    6. Patrick Dugan

      Key prefix: offshore. Offshore real estate gets capital out of the country early and beats the rush.

    7. Tereza

      Hmmm Andy I actually had been anti-gold but in support of your comment I do have to share the story of my two grandfathers, during and immediately following WWII, Czechoslovakia:Grandpa #1 had bootstrapped a successful potato wholesaling business of several dozen employees. It, and its underlying real estate, were seized by the Communists (he was forced to work as a clerk for the company for years thereafter). They also forced him to “sell” some very valuable land for pennies. Because of that forced transaction it was not restitutable later. When he finally escaped in 1970 the only thing of some value were a few paintings. Hard to tell if some gold would’ve made a difference. Not sure if it mattered, he just wanted to get the hell out.Grandpa #2 was a surgeon. He bootstrapped a city hospital. It was seized — both the operations as well as its underlying real estate. So was his city townhouse, his chateau and farmland. He died as a tenant in a small apartment inside this chateau while the secret police used the outlying fields for their exercises and chicken coops in the parlor (with lovely frescoed ceilings overhead).And what they dealt with is but a micro-fraction of the tragedy that befell 6 million Jews, many of whom had stores of gold and other valuables. Gold made no difference to their plight.When my dad escaped in 1967 my grandpa (the elderly surgeon) gave him two gold Napoleon coins from teh 1850’s, which he thought might help my dad out under duress. He swore not to sell them and now I have one of them and I wear it around my neck sometimes. I think my sister lost hers. She doesn’t really care about this stuff.Anyway, turns out they’re not worth any more than their own weight in gold….which is not much (although, clearly, increasing).My personal takeaway is that if something of that magnitude happens, you’re screwed gold or not gold, real estate or not.Get yourself and your family the hell out, to a place on this planet that’s safe, so you can re-build for future generations on the foundation of your smarts and ethics.But more importantly be a voice before that happens, so it doesn’t happen.(p.s. To avoid any misunderstanding, I would add the caveat that I don’t believe the current administration can remotely be compared to Communist Europe or Fascism, not by a longshot.)

      1. JP Richardson

        Wow. Thanks for sharing your story.

      2. Aaron Klein

        Great story.The only caveat I’ll throw in is that I think your gold coin isn’t increasing in value as much as the US currency you’re using to value it is decreasing in value — hence the perceived increase… 🙂

      3. Matt A. Myers

        So I guess it then primarily depends on what part of the world you’re living in that really determines the true value of gold…

        1. Tereza

          Sorta. More than that it’s what is the political and economic climate.Gold has been, for centuries. a go-to asset when there is underlying instability.In a vanilla debate tactic, based on Andy’s nod in that direction, I just took that concept to the extreme of one vector.When you look at it the way Fred teed it up — the global price of gold — is reading it as the asset class, and that’s a pure price/ value argument and very valid.But Matt I think the ‘where you are’ is less important than ‘who you are’ and ‘when you are’ when assessing whether gold will be useful to you.Do the intrinsic properties of the asset (real or gold) give you what you need at the moment in time that you need it (e.g. price/value, stability, portability, transactability, storability, and possibly, if you care, perceptions of beauty or emotional significance).And I’m just saying in matters of ultimate crisis, wherever it is…who cares. Just get the hell out of Dodge.

    8. Dave Pinsen

      Andy makes good points here, which are applicable to those who fear a hostile (or weak/collapsing) government which wouldn’t protect one’s property rights. But a lot of investors have been acquiring non-physical gold exposure (e.g., shares of the gold-tracking ETF GLD) not as a hedge against government hostility/failure, but as a hedge against inflation.Those who have been loading up on non-physical gold ought to hedge against the risk of it being a bubble. Checking Portfolio Armor for the optimal put options to provide the following level of protection at the lowest cost, it would cost about 1% of position value right now to hedge a GLD position against a greater-than-20% loss over the next 6 months. By way of comparison, it would cost about 4% of position value to similarly hedge a position in the S&P 500 index tracking ETF SPY (though it was a lot cheaper to hedge the SPY a couple of months ago, when the market was higher and volatility was lower).

      1. andyswan

        Agree…the real risk is deflation.

        1. Michael Hudak

          Deflation is not a risk. It’s here. You can already see it in action at WalMart… they dropped the price on over 10,000 items, and more are coming as a result of new retailers coming into the market that are able to undercut even WalMart’s prices.The Fed has reached the end of it’s rope. It can’t lower interest rates because they’re already zero. They can’t continue to print money hand over fist because it will eventually backfire on them. There’s nothing they can do to stop it.To head off any questions, deflation does not equal “lower prices.” Lower prices are an effect of the contraction of credit and available cash in the face of an overall high availability of goods to sell.

    9. Druce

      A gun was a no defense against FDR when he banned private ownership of gold.

      1. andyswan

        Again, anonymity of ownership is key.

    10. LissIsMore

      Andy,I agree whole heartedly. Gold is not a “tangible asset” as much as it is an alternative currency. The rise in the price of Gold has little to do with an “increase in the value of Gold” and everything to do with the “decrease in the value of the Dollar.” And the devaluation of the Dollar – as with most of the other Fiat Currencies in the world – will most likely accelerate do to the lethal combination of monetary inflation and sovereign debt.As a hedge against economic catastrophe owning a building outright feels good – until you need to liquidate it. Besides the all-or-nothing- liquidation option (it is hard to sell a piece of a building), this is neither quick nor without its large transaction costs.

    11. pfkrieg

      If the shit hits the fan – who cares about a soft, shiny metal? Useless unless someone else wants it, and Fred’s point is that the only reason people want it is that other people used to want it. If you’re a doomer, food and bullets are more useful than an ornament.

  10. Dan Ramsden

    There was an interesting interview with Jim Rogers that appeared yesterday, in which he makes the case for gold as a long term value play, and I think generally any “inflationist” will be of that same perspective. Marc Faber (“Dr. Doom”) explained it best in a 60-minute presentation that is available online. The “deflationists” on the other hand, such as David Rosenberg, are in favor of cash, which should appreciate in value as prices go down. Bottom line, any position is a speculation in the environment in which we’re now immersed. To my way of thinking, there is only one “real” asset, in this sense, and that is an individual’s or a collective’s capacity for work. This is one of the reasons that recent labor market statistics have been disappointing.

    1. akharris

      Isn’t Nouriel Roubini “dr. doom?”

      1. Dan Ramsden

        No, that’s the black swan dude. But he’s gloomy also.

        1. akharris

          Black Swan was Taleb, and he’s not that gloomy, just incredibly risk averse.About Roubini: “The New York Times labeled him “Dr. Doom”, whereas, in hindsight, IMF economist Prakash Loungani has called him “a prophet”.[2]” (

          1. Dan Ramsden

            Oh, that’s right, that’s right. Thanks.Faber is Dr. Doom though……I’m sure there are others… in fact, I bet some of them have several such doctorates.

          2. akharris

            sounds like they should duke it out. but they’ll have to contend with the original.

          3. Dan Ramsden

            Ha! That’s hilarious. You lose the impact when you see the small image embedded in the message, but when you click on the Disqus note it takes up the whole screen and almost gave me a heart attack. Actually, I think that IS Marc Faber.

  11. B444

    I think the move to gold is partly driven by paranoia, and that the hypothetical building that Fred discusses won’t generate that 100k, because things will indeed get *that* bad. The uprecedented upcoming challenges of climate change are also looming, and will accelerate within 25 years.It is extremely threatening to have one’s worldview shaken, and we can certainly adapt, but we must do so while not being driven by fear. There is always great opportunity in change.

  12. Havoc

    One lesson of this bubble and all other bubbles: don’t invest when the 5-year chart looks like that!(There’s your reason gold is popular right now.)

    1. fredwilson

      i love the contrarian mind

      1. Dave Pinsen

        Then you might like my recent little bet against gold. It hasn’t worked out yet, but if gold pulls back a little in the next six months, it might. Trying something similar worked last year.

        1. fredwilson

          I’m not a trader but I like the sound of that bet

          1. Dave Pinsen

            Fred, OT, but what’s the deal with Twitter where sometimes you click on it and get sent to a completely different site? E.g., I just got sent to Blogger when I clicked on Twitter.

          2. fredwilson

            that’s never happened to mei’ll look into it

    2. Elie Seidman

      I don’t know anything about gold but I would tend to agree; By the time a market is broadly recognized as being “hot”, it’s almost certainly not.

    3. kidmercury

      but alas, gold has been rising since 2000…..

      1. AgeOfSophizm

        Gold is hitting nominal highs whereas silver is (I believe) +/-70% below nominal highs. Although, that 60lb bag just got a lot heavier if this is your strategy.

        1. kidmercury

          i am a big fan of silver as well and consider it reasonably possible it has a greater upside than gold at this point.

    4. Dave Pinsen

      Or, if you’re going to invest anyway, at least hedge. It’s not the bubble that kills you, but not being hedged against its inevitable bursting. A great example of a guy who successfully hedged during a bubble is Mark Cuban. When his company was bought out in a share deal by Yahoo!, he hedged against a collapse in Yahoo!’s share price. When the dot-com bubble burst, Cuban’s wealth was protected. He’s probably one of the few founders to get incredibly rich during the dot-com bubble and not give most of it back when the bubble burst — because he hedged.

  13. agustingonz

    nice post Sir.i believe that under most circumstances, real estate might be a good investment; however, we are still seeing a deflating of bubble prices on most real estate assets and of particular those located on the east/west coast.the case-shiller price index in late May showed that nationally, prices last quarter dropped 3% from the previous month – and sadly most of the last year’s gain were driven by stimulus and federal tax credits.with all that said, i do agree to the extent that real assets are preferable under most circumstances how, real estate prices in a “post-bust” era are still showing signs weakness. and the ever looming threat of a double-dip recession should force investors to only engage into deals that are absolutely buyer today’s landscape, i recommend tactically shorting the Euro and picking up S&P 500 puts….this one is going lower baby. cheers!

  14. Alexander Ainslie (@AAinslie)

    Investment grade Fine Art is/has beaten the pants off Gold & other non-financial / alternative asset classes.

    1. ShanaC

      Thinking about it though- I keep wondering this. Even with a truly limited supply of Degases and Picassos, will the price go up eternally? Doubt it. One of the ways this work is that not all Picassos and Degases are created equal. Still…something doesn’t sit right with me about all of this.

      1. akharris

        Probably because it isn’t the right way to look at the market. Art is actually a terrible investment as an asset. Some people get very lucky by buying a picasso from the man himself, but most art never rises much in value, and, in fact, loses it a quite a bit. I can’t find the chart right now (I’ll go look), but if you plot the appreciation of artwork as an asset relative to other asset classes, it has not done particularly well. There was a huge drop in the market concurrent with the collapse of the stock market when rich folks started selling a lot of paintings to raise capital to cover margins…There’s also the fact that it is highly illiquid and difficult to value.

        1. ShanaC

          Correct, buy it because you like it.

        2. ShanaC

          I should edit the bottom to say the art market goes through regular mood swings. There was a massive art bubble driven buy the banking people during the credit crisis. There is also a truly limited supply of masterworks from the dead masters (and you can tell) There are certain bellweather artists and styles.However, because demand was (and on some level is) so high and the general population much more educated the auction market went into the contemporary market rather than letting the (should be sued for their lack of transparency) secondary gallery system for setting the price.There are effective ways to value a piece depending on your speciality( you rate it on a scale between itself and other worse of the artist plus artists that are contemporary doing similar work. If it is true to the character of that field, to pushes that field into the next field, generally it holds value. also holding value, things we find pretty, and while there are trends, it is not super trendish despite mentions to the contrary. Then compare those pieces auction results to what you want to value and hope for a bid in the midrange). I would say wait a year min though…the market is in flux. Still.The larger problem is actually preservation.

  15. mrcai

    “I don’t really know what I’d do with a bunch of gold”I’m glad you mentioned this. I’ve never understood the point of gold, you can’t build shelter out of it, you can’t eat it, it’s useless. It’s value seems to originate in the fact that it’s shiny and a limited resource, thus pharos and kings could differentiate themselves from the masses:”Look at my shiny gold, I’m all powerful, it’s the same colour as the sun”They don’t make land anymore, yet the worlds population is increasing and shows no sign of slowing. Seems like an easy choice to me.

    1. akharris

      They’re not making gold anymore either, except by puling it out of the ground. Of course, they’re also making more land – see dubai and fresh kills park here in NYC.

  16. steveplace

    I wrote out a counter to your argument. Specifically, real assets are a hedge against inflation (generally) but gold has been outperforming in a deflationary environment.http://www.investingwithopt

  17. LIAD

    Our parents generation grew up in the shadows of the holocaust. I’ve heard countless stories of people being evicted from their homes on moments notice only having enough time to grab a handful of things before the nazi’s forcefully removed them. Gold trinkets and silver candlesticks etc played a large part in securing safe passage throughout Europe for thousands of people.I know people today who maintain gold in their homes purely for use as shakedown money in a doomsday scenario. Perhaps their concerns are unfounded and this definitely has no real relevance to gold as a asset class in a macro sense however it may provide a little insight as to why for some people gold holds almost mythical properties

    1. Tereza

      I can totally respect that.I do wonder how much of the value is actually exercised….versus gives them the confidence in knowing that in worst case scenario they could sell these things.I think about the Madoff victims — one family in Westport whose father was a rabbi and the family had generations-old incredibly valuable Judaica. They never wanted to sell it. Sacred stuff.They made good livings and fortunes here, without selling.And sadly after Madoff, they had to sell. Really sad.

    2. ShanaC

      So did mine. It definitely affects the idea of what I think is appropriate milestone gifts (I do not think tech is appropriate, despite trends in that direction, tech does not hold value at all)

  18. Tom Bakalis

    Gold is in a bubble right now. While it may be true that it will hit $3000, it may hit $900 before that. Gold is climbing right now because most currencies are being debased by governments. The one truth about bubbles is that in the midst of one only the most devout contrarians truly realize that a bubble exists. History has shown this to be true with bubbles in tech stocks, real estate and even tulips.Income producing investments are still the best bet. I’ve owned all asset classes and find that real estate has been the most sound. Yes it goes down as well as up but as Fred points out if you buy it right it will pay for itself. Right now there is still opportunity in real estate but you must be diligent when buying.

  19. William Mougayar

    I’m not sure where to find the data on this point, but it would be insightful to find out where is the money that’s buying gold coming from? Is it fleeing equity/funds/financial instruments markets or is it depleting reserves that would be otherwise used to build something productive? If it’s the latter, then that’s not good as it’s money sitting on the sidelines and not being used to create new wealth (as per main point you make). But if it’s fleeing financial instruments as a hedge against low returns, then it’s a different picture. Perhaps it’s a bit of both. The point is that it would be useful to understand the macro dynamics of large shifts of money. And what percentage of money pools are currently going to gold versus what it was- say 2-4 yrs ago?

    1. JLM

      Just a bit of tongue in cheek —From the folks who worship at the feet of Glenn Beck and Michael Savage?

  20. Albert

    Fred,Do you have any other suggestions on a hard assets other than real-estate? As others have mentioned, the problem with real estate is that the government has a huge deficit and will be looking to tax as many sources of revenue as possible. It would be a miracle if taxes on real-estate didn’t go up.Albert

  21. Tariq

    Fred, I agree about gold.To me, there are basically three things you can do besides buying gold:1. Seek out large cap companies with strong international presences and pricing power.-Johnson & Johnson is a wonderful example of a company that has been around and thrived, even through the Great Depression. I was working on an analysis the other day and you will see that JNJ typically will outperform treasuries on the basis of its earnings yield and dividend.-Coca-Cola is another one that I think is pretty attractive if you think inflation is coming. They have pricing power and their dividend should be able to increase faster than the yield you get on TIPSNow, during the financial crisis, both of these businesses got hit, but they weren’t hit particularly hard. I think nobody had any fears that JNJ would suddenly go bankrupt.2. Hard assetsYou make a good point about diversifying into non-stock investments with hard assets like land. There are some stocks that offer that same value (no, not REITs) while being publicly traded. The only thing is that unlike investing in actual land, you have the ability to check what the market is quoting the stock at. For some, that kind of information access might be psychologically unnerving, esp. during a turbulent period.I looked at one here in TX the other day, it consists of just two guys (with salaries fixed at $100k) and a secretary who manage a self-liquidating land trust here. So they own 1M acres of grazing land that is mostly leased to ranchers, which benefits from mineral discoveries, and they get the royalties from oil and gas that gets extracted from their land. Every year they sell a certain percentage of the land (they have been doing this for over 100 years) where the proceeds from that plus the royalties are used to buyback stock and pay out a small dividend. What you end up with is a nice, sort of inflation-resistant yield.3. Seek out cheap insuranceUsing options that are out the money, you can usually pick up cheap insurance (there are frictional costs) to protect against any catastrophe or in this case, a sharp movement in prices. The only issue with this is that you have to be constantly buying the insurance. It is not just a matter of you trying to buy it when you think things are overheating, you kind of have to passively do it.Michael Lewis’ The Big Short showcases this approach on the sections about Cornwall.

    1. fredwilson

      how do you know the insurance company will be around to pay out?

      1. Tariq

        I think that in general, the options market, especially for pretty common securities (options on the S&P 500, options on the USD) is one where you don’t really have to worry about counter parties.I know that things get much more dicey when you get to looking at things like credit default swaps (which are really just another form on insurance), but I don’t know many players that have access to those and I think options work well enough.In Lewis’ book, he details how Cornwall simply used out of the money put options that were out the money on firms like Bear Stearns. So since they were out of the money, they costed very little up front and then proceeded to make something like 20x returns when the crisis happened and intensified. There are some other investors who have been successful with the same strategy Nassim Taleb, Seth Klarman of the Baupost Group.Basically, it is just a strategy of betting on improbable events occurring. The biggest complaint about it is that it takes a bit of work on the part of the investor and makes you incur some small frictional costs from hedging.

  22. Michael Lewkowitz

    Love the idea of investing in farm land – would be a really interesting community-based model. Not too dissimilar in community owned renewable energy, which is my favorite non startup investment.Here in Ontario we have access to 20 yr. purchase agreements from the Provincial government for all the energy produced. That coupled with virtually no input costs creates a low-risk, long-term, yielding asset that has additional long-term benefits of contributing to a more sustainable energy infrastructure and communities that are stronger and more capable of developing future projects in the local community. I’ll take that over gold any day.It’s one thing to rationalize an investment strategy based entirely one personal financial wealth management in a world that has a certain future. It’s quite another in a scenario where we have some major shifts underway that are changing the very structures and engines of wealth that we’ve been fortunate to benefit from. The same game is no longer the safest game.

  23. Jose Paul Martin

    I’m with you on real assets. Maybe being an Indian… I have an affinity to gold… its something with the yellow metal that intrigues us…But I don’t quite think real estate is a good option for all. To own a fairly decent property… you have to have a lot of cash. The ordinary person might not have enough money to really buy property and lease it out… (in india the rental yields are miserable… so it doesn’t make sense to buy).But gold is a fairly easy option… you can buy small amounts… and have a sense of security… when your government messes things up.

  24. ErikSchwartz

    It all depends on the nature and duration of the crisis you are preparing for. Different crises will manifest themselves on America in different ways. In a large scale, long term crisis where we have real system breakdowns real estate will move towards its intrinsic value.The 2 bedroom $2.4M apartment in manhattan will lose value fast. The 25 acre plot upstate with a producing well and game on it will increase in value. Real estate in much of California will approach zero (no water). It’s kind of amazing how fragile some of the key infrastructure in the US is. If the Hetch Hetchy goes (all it would take is the right earthquake), northern california will not have enough water to support its population. Let’s say gas gets rationed… How many days of food are in NYC right now?As for gold, I think it’s useful in a medium range crisis (I have some, not a lot, and I “have” it, not just own it).But why do you really want gold if the shit truly hits the fan? To buy food to feed your family. If that’s the case, you’re better off storing food than gold. We bought about 500 pounds each of rice, beans, and hard red wheat berries. We bought them from the Mormons (who are big believers in this kind of thing) for basically their cost. They’re sitting in the basement in 30 year storage cans that the LDS guys ship them in.

    1. ErikSchwartz

      Jeez, I’m starting to sound like The Kid

      1. kidmercury

        let me know where i can mail the 9/11 truth shirt 🙂

    2. Mcbyrne

      This is interesting. Are the containers individually sealed or does opening the rice container expose 500 lbs of rice to the air? Also, what are you doing for water?

  25. William Mougayar

    For the sake of arguments, this statement “The gold will sit safely in the bank earning you nothing” is not totally accurate. Since gold is appreciating, you could occasionally resell a percentage of it and call that an ROI.

  26. rossgreenspan

    If owning gold for the geopolitical hedge of total financial disaster, expect that when you want to “cash out” you will need to exchange the physical gold for something else physical. You’ll have to barter the gold for tangible assets. It’s value will be indeterminate and variable as a barter good. No $xxxx.00/oz. quote.I have food, you have gold. You’re hungry and desperate. I’m fat and content. What’s your gold worth to you in exchange for my food? Is it worth more to my neighbor who need to barter something for a new diesel engine for his tractor? Better check.Gold is a feel good hedge. It won’t protect anyone from a disaster.

    1. Mcbyrne

      Actually the better question is: which family gets to board the last boat out of here or not, which family buys it way out of the line into the oven. As someone who has family that has survived Nazi and Soviet regimes, I have heard first hand the reality of this world. You may want to rethink your position.

      1. ErikSchwartz

        It all depends on what the crisis is.If the crisis is the repression of a minority and you can flee from that by having an asset you can sell to the majority, you’re right.If the failure is more systemic and complete, gold becomes basically worthless.It all depends on where you see risks.

        1. Michael

          Erik, I don’t understand your point. Gold is worth having for the situation I illustrated, which you agree with. But what would be a real world example of a situation of a systemic and complete failure occuring where gold is worthless and something else would be worth having instead?

          1. ErikSchwartz

            Ross gave the example at the start of this thread.We’re both hungry. I have food, water, and fuel, you have gold. There’s nothing to buy except food, water, and fuel. Why would I accept your gold for my supplies? What value would the gold have to me?Gold only has value after the basics of life are dealt with.

          2. mcbyrne

            Well, I did say “real world.” I’m sure Ross’s scenario has appeared in comic books and movies, and Google job interview questions, but I don’t think that it has ever happened in real life. Ever. If it has, I would be interested to find out about that. But even in Ross’s scenario of only two men left in the world, one has food, water, and fuel and the other only has gold, there actually would be a basis for exchange and the gold would not be worthless. I didn’t read the rest of these comments since they seem to have spun out of control, but I did see your post about having food on hand. I think that is a good idea for emergencies, as is having gold for bigger emegencies requiring flight. But saying: gold or food, which is better? is a false choice, much like Fred’s post, which was my reason for posting originally in a different comment thread on this post.

          3. Michael

            In fairness to Ross, I reread Ross’s scenario after replying to you, and it isn’t just two people in the world it is three, your paraphrase/my interpretation of what you said is about two people. The rest of it should still stand.

          4. rossgreenspan

            mcbyrne, my position on gold stems from an expectation of the crisis we are presently enthralled eventually becoming total catabolic collapse of the industrial economy and physical environment. Your reference to gold as ticket for safe passage is relevant in the early stage where material greed still triggers a mental reward. In later stages, scarcity of physical goods required for basic living becomes the reality. Then, the value of gold in relation to “necessity goods” is whatever the holder of “necessity goods” demands.

          5. Michael

            Maybe I misunderstood your post. When you said ” Gold is a feel good hedge. It won’t protect anyone from a disaster. ” I disagreed because it certainly can. But I think rereading your post, you meant saving you from financial disaster, which I would agree with. I also agree with you that the price of gold is determined by supply and demand, which is what you just commented about.

          6. ErikSchwartz

            The scenario has happened quite frequently in human history. I’ll call your attention to the Siege of Leningrad 1941-1944 to start.I’m not saying gold has no place. It does have a place, both as a hedge and as a currency. I just think the scenario where flight is the answer (especially flight from the US) is hard to imagine, where a scenario where there will be no trucks making it into NYC for the next 6 weeks, or the water distribution system in the west fails catastrophically, is pretty easy to imagine.It all depends where you are. If I lived in Israel or China right now I’d keep a lot of gold around (in the house).If your business is playing financial engineering games instead of creating value (which is what Bob Demarco was talking about) then by all means play all the games you like. But just a reminder, those clowns proved last year they had their heads up their asses and had no clue, and we just all paid 100’s of billions to bail them all out. Now they want to sell gold funds to “protect” us.

          7. Michael

            Okay, I wasn’t at the Siege of Leningrad but my family is Russian on my grandfather’s side so if I asked around I might find some interesting stories. Having said that, check out,” During the 900-day siege of Leningrad by the Nazis in World War II, a woman was confronted with a choice. The city was in a state collapse barely holding off the Nazis, but bereft of food. Over a million Russians would die during the Stygian siege. None would ever be mourned individually as their bodies were dumped in mass graves. Death assumed many guises. Sometimes it appeared instantly through bullets or bombs. Other deaths rose slowly from freezing cold or starvation. The story of a single Russian woman revolves around a dilemma. Should she trade her diamond engagement ring for a sack of potatoes or starve?Of course, she traded that treasured item. Even on the brink of societal dissolution, this ornament with little or no industrial use had value.”Of course this one anecdote proves nothing but if you read up on the Siege, you will find out about people buying food ration cards with gold and money.Anyway, as I said before, I think it is not a case of either/or. Yes have food, yes have some gold coins.

          8. ErikSchwartz

            I bet that was in the first winter of the siege, not the third…But here’s my real point, and you make it well.She sells a diamond worth $1,000 for $1 worth of potatoes. If she had bought and stored potatoes before the war she could have had 1,000 bags of potatoes (or grain or rice) for what the diamond cost.Is it better to store gold and diamonds rather than paper currency for a rainy day? Sure. But you’re better off storing and owning things that have actual intrinsic value in a crisis. Your hedge commodities deflate massively during a crisis, your goods with intrinsic value do not.

  27. Jack Bloom, Pace University

    The price of credit default protection against British and French government bonds is now 1% per year – close to their one year yield. The price for Italy is 3% per year, exceeding the one year yield. The price has risen rapidly in the past few months. Gold is liquid, marketable, and transportable in relatively small amounts. $1,200 an ounce, $19,000 for a pound. $190,000 for 10 pounds. Hard to carry around an apartment building. Can also be purchased in a liquid market such as GLD Exchange Traded Fund which physically owns gold. As a hedge against a downturn or turmoil, it may be a good part of a portfolio. Not everyone can buy an entire building or purchase one for positive cash flow at any particular time. I don’t think that your comments are realistic for most people.

  28. AgeOfSophizm

    I think an investment in USV would be a good inflation hedge (see value creation/disintermediation). Fred, what is the minimum investment?

    1. fredwilson

      you can’t invest in USV right nowwe have two funds and they are closed

      1. AgeOfSophizm

        Sorry to hear, but will look forward to fund three

  29. michael

    Hmm, maybe someone else will point this out by the time I post, but gold actually is a “real asset,” a tangible asset in contrast to financial assets or securities. So you might want to update your headline and premise. I don’t invest in gold, but it actually would be smart to have some gold coins on hand if you have to flee in an emergency. That is its value, its USP.Comparing gold to real estate is silly, they are very different. Real estate is illiquid, government-controlled, taxable, requires cash, requires management, requires time, and is immobile. Gold is not.If you want to pretend away some of the issues with real estate by talking about REITs or professionally managed property, you are back in the financial instrument category.

  30. Charles Krueger

    The biggest value I see in the possibility of owning Gold right now is that I have a very young 401k plan that doesn’t have a lot gained right now. With the insecurity of the market and projections of a big down turn to come, I am interested in protect the little that i have in there. this is the benefit to gold that i can see, the security of the asset and the likelihood that if the dollar drops the gold rises.

  31. Druce

    “You have a choice of trusting the natural stability of gold or the honesty and intelligence of members of the government, and with all due respect to these gentleman, I advise you as long as the capitalist system lasts, vote for gold.” – G. B. ShawGold is can be viewed a currency without a central bank.It doesn’t yield anything, but then these days neither does a dollar yield much.There are probably good real estate investments these days, especially with all the tax breaks, but it’s a very local, illiquid market. The apartment example is fully dependent on how much personal income is available in the local area to spend on housing, and NY, for instance was a pretty bad investment for about 50 years after the 1929 crash until the bottom of the NY fiscal crisis in the 70s.

    1. Dave Pinsen

      It’s also possible for an apartment building to have a negative yield, if it’s unoccupied (or it’s occupied by tenants who refuse to pay) and while you still have to pay property taxes. A family friend in Manhattan who is a real estate investor sticks to strip malls and won’t touch residential real estate with a ten foot pole, since he figures any judge would be partial to a local renter over a stiffed out-of-town landlord like him.

      1. Lina Inverse

        Gold is also valuable in a deflation because it’s the only liquidity that doesn’t depend on anybody else’s liquidity. In the above sort of situation, if you don’t have cash you might be very happy you have enough gold to sell to pay that property tax and keep your real estate.

    2. Druce

      Would also add there are some interesting stocks yielding 5%+ is just the S&P and doesn’t include smaller stocks and Euro-hammered stocks like Royal Dutch Shell yielding 6+%

  32. William Mougayar

    Somehow related to this: US debt in 2010 is now 98% of GDP vs. 58% in 2000 & 37% in 1970. If this doesn’t strike fear, I’m not sure what would.

    1. JLM

      This is the uncomfortable statistic that nobody in the White House or Congress wants to talk about.At a time when the GDP is being artificially supported almost exclusively through government spending — which is not sustainable spending and which is truly money from taxpayers — and “real” GDP is actually decreasing, when tax revenue collection is decreasing, when unemployment is increasing and when there are storm clouds on the horizon, the government’s credit card balance is now more than the magnitude of a year’s “income”.This is an unhealthy, unbalanced and dangerous situation which calls for fiscal restraint and traditional economic stimulus — tax cutting for those who actually pay taxes — thing that we know will work.One may debate the political wisdom of healthcare, cap & trade, foreign policy but simple, fundamental fiscal management — credit card debt — is not impacted by one’s political views. When political views create actions which result in enormous increases in current deficits and national debt, it is time to get the green eyeshade accountants out and deal with it.

      1. William Mougayar

        JLM, I agree.The only way out of lowering this big deficit is some inflation, and Gold is seen as a hedge against inflation, since over the years Gold has preserved its purchasing power pretty well.

        1. JLM

          When Obama first came to office I remember thinking and saying two things:We would look back on $500B deficits with nostalgia; and,His real enemies would end up being Nancy Pelosi and Harry Reid.Forgetting completely about the political implications of any of this — in much the same way that cancer does not ask for your Voter Registration Card before working its mischief — our economy simply cannot sustain $1.5-2T deficitsWorse news is that you cannot wind down deficits cold turkey. They must be done gradually. A good rule of thumb is that it takes twice as long to get out of a recession as it took to get into it. That certainly is the Nation’s history as it relates to unemployment.I think it is safe to say that we are looking at a fairly long term high level of unemployment, hell, Summers has come to suggest that 8-9% may become the “normal” level of unemployment. A very inconvenient “truth”?If the gov’t took every single penny of income made by the folks who are targeted to bear the forthcoming tax increases and who are already paying all the taxes in the US, you still could not make a meaningful dent in the deficits we are talking about.

      2. Dave Pinsen

        “This is an unhealthy, unbalanced and dangerous situation which calls for fiscal restraint and traditional economic stimulus — tax cutting for those who actually pay taxes — thing that we know will work.”Nice trick there of calling for “fiscal restraint” and tax cuts in the same sentence. That’s like President Obama talking about the need for fiscal responsibility while asking Congress for more deficit-financed fiscal stimulus. Fiscal stimulus — whether in the form of tax cuts or increased government spending — is the opposite of fiscal restraint. And the truth is that some of the tax cuts advocated by Republicans last year as an alternative to the Democrats’ bloated stimulus package were really government spending by another name (what else are refundable tax credits but grants?).There’s a good argument to be made for the efficacy of fiscal stimulus (spending, tax cuts, or a combination of both) to ameliorate severe recessions, but there’s a point where it becomes counterproductive, as rising government debt levels raise fears of sovereign risk and signal sluggish economic growth for years to come. How close are we to that point?

        1. JLM

          Well, not really, fiscal restraint and fiscal stimulus are like diet and exercise.Restraining the creation and growth of government programs diminishes the need for additional funding when additional funding is not really available.Every meaningful tax cut in the history of the US — such as Kennedy enacted — has resulted in an increase in revenues to the Treasury.No different than diet and exercise in tandem accelerate the attainment of the desired objective.Of course, what this does not do is feed the beast of liberal causes as the fiscal programs that are likely to be impacted are the “redistributive” programs of this administrationYou can only cut taxes on those who actually pay taxes thereby removing the bulls eye that this administration has affixed to the most productive elements of society.Does it not make sense — easy question as it has been demonstrated to work time and time again — to reduce the taxes of those who actually pay taxes, lure that capital back into the economy to actually create jobs?If you want to create jobs, you are going to have to let the job creators have their own capital and a bit of confidence that you will not change the game on them any time soon and get out of the way.Of course, you can also just ignore that brain tumor, keep eating candy and “hope” for a “change”.How’s that working out so far?Numbers and financial outcomes are real, not political. What is being done thus far is NOT working.

      3. fredwilson

        fiscal restraint is what we need right now JLMi’m with you on that onesustainability equals revenues greater than costs

        1. JLM

          The problem, of course, is that “fiscal restraint” is not a war cry. No bastions were ever stormed because somebody hollered: “Fiscal restraint! Onward, boys!”It takes leadership, principled patient leadership. It will take a Dwight D Eisenhower type of confident leadership, someboy who has run big things and folks know it.I fear unfortunately that DC has become so virulently, narcissistically, knee jerk partisan that it will take a truly extraordinary leader to get America to face up to the deadly disease we really have. On a personal note, I find myself gravitating naturally to less costly endeavors. Not really changing the nature of the endeavor but following an unconscious magnetic pull toward a more conservative financial approach to the world. It is without even thinking about it. Frankly, I seem to enjoy it more as it puts a more human face on a lot of things which were otherwise lost in the blur.

          1. fredwilson

            our current mayor here in NYC is that kind of leaderunfortunately he is short, jewish, and has a lisp

          2. JLM

            Bloomie just be the man some time very soon. His positioning — disavowed Republican, running a huge city — might just be the ticket. With the right Southern VP, he might just be the man. I’d vote for a guy who is Jewish and short and has a lisp as long as he can run the damn show with a bit of brainpower.I am so tired of knee jerk politics.

          3. fredwilson

            he can run the show and can make hard and unpopular decisions

          4. kidmercury

            don’t forget how he still denies 9/11 being an inside job and has arrested 9/11 truthers for engaging in peaceful journalism. you always overlook that in your compliments about bloomberg, and then i have to come in and drop 9/11 truth and spoil the mood for everyone. damn.

          5. Fernando Gutierrez

            In Europe we are having the same problem. Governments spending much more than they collect (deficit of 6.5% of GDP) and huge debt (79% of GDP). And here governments spend and collect a lot!Most countries are cutting expenses, and you can see ideologies in their decissions about cuts. Most are also increasing taxes (usually sales taxes, but also income taxes to the rich so they can justify the cuts to all the others…). Very few, if any, are reducing taxes.It’s sad to see that politicians are the same everywere.

  33. akharris

    I’m a big fan of gold, not on its own, but as part of a balanced portfolio that has things like real estate, and equities, and other commodities. Gold is a great hedge against inflation, and is the one of the best assets around when financial markets exhibit “flight to quality” shenanigans like what we saw during the meltdown. Sure, it’s a valuable because we say that it is, but billions of people all over the world have valued it for thousands of years. That could change tomorrow, but if it does, we have other problems.If we are facing a collapse of society on that level, I’m taking Robert Heinlein’s advice and building a whiskey still. You can all pay me with your gold.

    1. Antonio Tedesco

      I agree; diversify your portfolio with gold. It’s not a matter of equities or gold but rather allocating a portion of your investments in gold. I prefer an ETF. I’ll hope the shit stays off the fan. If it doesn’t, gold bullion won’t be my biggest concern.

    2. fredwilson

      That’s an asset I like. Its productive and should work in a down market!

  34. Bob DeMarco

    Fred, I love your stuff and you are one of the best. But, you should stick to “stuff” that you actually know something about.For starters, you can buy gold and lend it out. You would make a higher rate of return then you would in Treasuries. Of course, you would have counterparty risk so you would need to know what you are doing.There is a very dynamic gold lending, swap, and repo market. The angles are limitedless. Just ask one of your buddies for an introduction to the boys that “arb” and trade gold at Goldman Sachs.As far as your wealthy buddies go, they might be smart enough to buy gold in the form of a very well run company like Goldcorp (GG). You actually get dividends along with the price risk associated with the investment. You would be up several times the price increase in physical gold if you owned gold via Goldcorp in the last five years.Like you said Fred, they are buying gold as a hedge. I doubt they are betting the ranch on a single commodity.Owning gold should be viewed the same way as owning oil, or cardboard boxes for that matter. You could invest directly in oil drilling. You could go out and buy a million dollars worth of cardboard boxes if you were so inclined. Or you could invest in a well managed company.Well managed company that is where you come in Fred.You could also consider something like this when investing in gold. The major central banks of the world have been monster sized sellers of gold over the last decade (thousands of tons). They have been dropping an enormous amount of “supply” on the market. This is addition to the “supply” that is coming out of the ground.When there is an enormous amount of supply of anything coming on to the market and the price is going up, you have to ask yourself a simple question — who is demanding the supply? Somebody is buying all that gold.Right now, there is more demand then there is supply. Hence, prices goes up. China by the way is a big factor in this supply/demand equation. They have a building appetite for gold. And they have the ammo.There is one last factor you might consider. Gross and net margin. If the price of gold rises say to $3000 what is the difference likely to be between the cost of producing gold and the price at which it could be sold? Like oil, when the price rises exponentially faster then the cost of production you get windfall profits.Stocks like Goldcorp will be up more then the price of gold. Probably two to five times as much, more if the public goes “Internet stock” and causes a bubble. This is a likely occurrence. Joe Smoe has to buy the top, he just can’t stand it anymore.On other hand, you could have bought Intel ten years ago and still be holding the dead money.By the way Fred, if there was a liquid market in apartment buildings you would have no problem finding a wealthy buddy that would be happy to short you one.The comments on this article are almost as entertaining as a good episode of Curb Your Enthusiasm.

    1. ErikSchwartz

      Of course if you’re buying gold because you fear a societal collapse gold mutual funds are as useless as any other paper. If you buy gold to protect against the zombie scenario you should not put it in the bank, because if the shit hits the fan the banks are not going to open.But if what you’re doing is playing the commodity game then you’re right.

    2. fredwilson

      I don’t think I should stick to stuff I know about. Becuase how would I learn if I did that? This discussion is all about learning. I don’t like gold and never have. Maybe I should like it.

      1. JLM

        Fred, you have become the host of a “salon” wherein all you have to do is to flip a good discussion topic to the guests — some of the nicest, most gentlemanly and intellectually gifted commenters on the ‘net — and watch the chatter swirl and form and the right views bubble to the top.When ideas wrestle, the resultant ideas are all stronger and the truth finally appears. And you are absolutelly right, that is all about learning.Let the wrestling and learning unabashedly begin.

    3. JLM

      I agree w/ your assessment as to buying good companies who are involved in a commodity play that one likes with a couple of cautions —When the commodity rises in value such that the cost of production argues for the creation of more “mining” and the reopening of otherwise too costly production facilities, beware.Exxon drilled for oil once upon a time on Wall Street deciding that buying Mobil was less costly than turning bits to find reserves.When the commodity is not “consumed” but is rather “stockpiled” be careful, as the same frenzy that got everybody in — rising prices — is going to motivate everybody to get out at the same time.The panic which drives falling prices is way more virulent and powerful than the euphoria which drives rising prices. One only has to see the trading pattern around the dates of the worst NYSE days to see this pattern clearly.This is particularly true for a commodity which has very low likelihood of being actually consumed.Gold and gold companies are going to be a “trade” rather than a long term investment. Real estate CAN be a long term investment if managed correctly and the equity created thereby is accessible tax free by virtue of re-financings. Also, correctly owned, real estate can be eligible for “like kind” exchanges which ultimately can completely forego taxes with a good estate plan.Love the Curb Your Enthusiasm comment. Life is becoming a huge sit com with everybody acting true to form. Hell the White House is one step removed from Entourage.

  35. Free Classifieds

    I 100% concur with you, Fred. Gold does not have intrinsic value except for Asian people who prize it for jewelry during weddings or births and a kind of savings for the rainy days. Gold price will climb because of the demand from China and India as the middle class incomes in these countries accumulate rise. However, there will be a point when they will realize that gold does not really have any value of its own. As you said, it does not generate income. You can only realize value if you sell them.

    1. JLM

      Actually given current and impending tax policy changes, the ability to BORROW against gold is a very attractive proposition as borrowings are not taxable. Every wealthy person with locked up capital gains is looking at taking on debt — historic low levels of interest, mind you — as a strategy to outwait the current administration’s silliness.

  36. JLM

    What an interesting topic and what an interesting body of commentary.It is pretty clear that there are two different frames of reference at work here:”End of the world” v “Rational investment environment”In the end of the world scenario, having gold in America is probably not the move that is going to save you. The WWII scenario of moving assets across Europe to Switzerland to safeguard passage through the eye of the storm did not really work so well because of the rotten Swiss. The Swiss turned out to be as big a bunch of bastards as the Nazis.In the rational investment scenario, gold is more of an inflation hedge, short term, sleep well strategy which begs the issue of what would you really do with it. You don’t have to answer that question as you will untimately make a trade at some future date to recover your investment, your gain and your inflation hedge.Having been in the commercial real estate business for over 30 years, I can tell you it is a great business but it is an “operating” business unless you are content to acquire land and just let it sit — not a bad idea.Huge fortunes have been made in real estate and huge amounts have been lost. Real estate is a competitive business in which not everyone can win.The key to real estate is to hold it for a long, long time to ensure you reap the benefits of growth AND inflation. A bit of debt associated with income producing real estate is good as you also have the benefit of equity building by debt repayment. God, I love real estate!When the dentists are getting in — get out.When the institutions are getting out — get in.

    1. markslater

      I’m somewhere between gold digger and slum lord and having a right old time.

  37. Peter Bretscher

    Gold vs Real Assets…vs??? Gold is a Real Asset too. The value of Gold is subjective (and intangible) and depends on many things. As it does for other Real Assets too. Even as Knowledge (use-how, make-how, think-how) and Intellectual Property Rights are intangible – they are real assets too.

  38. Jerome Camblain

    Fred I agree with you. Gold is not something natural to deal with: People spend a lot of time digging the ground to find it, and once they have, they dig deep to hide it (at least metaphorically speaking).This asset is subject to a paradigm shift. The industrial use can one day be be reduced as technology will replace it with cheaper synthetic substance. Showing flashy jewels is not fashionable any more, nor politically correct, apart from developing countries but this will fade too.There are cheaper assets that can protect against inflation and that trade at a discount to NAV. Look no further than in the REITS industry.

  39. web to print

    Another bubble?

  40. JLM

    If you are planning for the doomsday scenario, get a sack full of diamonds.Diamonds do not have to be assayed — anybody w/ a loupe and a keen eye can value them.They can be transported easily and with no real restrictions.The supply of diamonds will not increase in times of international crisis as they are not as readily available as gold.Of course, they suffer from the real “tulip frenzy” issue as with gold — their value is artificial and is based upon a “perceived” demand rather than a real demand.The world’s supply of gold is far greater than the industrial demand for gold as a commodity to be fashioned into industrial goods.

    1. Scott Yates

      I’m surprised it took this long in the discussion to get to diamonds.For all the other movie references, the one that came to mind for me was Marathon Man.

    2. ShanaC

      they may not hold, there are a surprising amount of engagement rings out there…

      1. JLM

        Hmmm, how many 4 carat, brilliant cut, F or better color, VVS1 or better clarity and maybe just a bit of “visually internally flawless”?Take a look at what these type of diamonds are sellling for loose and as simple engagement rings at Sotheby”s DuPuis auctions, etc. Look at their auction book estimates and then check the “realized prices” and make your own decisions. Check the Rappaport Report for an idea of how complex diamond valuation truly is and then take your chances at auction.They are holding a very nice value and now would be a great time to buy them.To say nothing of the ability to evade estate taxes at some future date, no?Move along, nothing going on here!

        1. ShanaC

          that’s most diamonds on the market. most diamonds are not F or better VVS1and perfect or nearly perfectly cut- and over 4 carats. Most diamonds arein the 1 ish carat range and are slightly tinged. And they don’t holdvalue. And we should educate people about that.

  41. John Frankel

    FredYou have clearly hit a nerve here with tons of comments. Over the long-term gold moves to the financial center of gravity, it always has. It moved to Rome, to Spain, to England and the US. It is now moving to to Asia.Gold as an asset class has held up pretty well over the last few thousand years, so, with a long term view, it probably is fine to own here. Shorter term we have to consider Governments and whether they are trying to maintain the value of their respective currencies or whether they now want to inflate their debts away. It looks like the latter, and all at once. This can only benefit gold. It also has the benefit that many mention of being bearer. In this digital age there are fewer and fewer bearer securities and that is true whether you live in Greece, Spain, Portugal, Ireland, Italy, the UK or the US. Note that gold is close to its all time high in pretty much every currency. As the world recovers you then have to consider Jewelry demand, especially in Asia and other emerging markets – by my estimation this will grow with the exponential growth of their middle classes.Finally, it is a decent cash alternative, with no paper-asset risk, and we know what has systematically happened to paper assets.

  42. Justin Kuepper

    Gold is also an unfair distribution of resources. What is Country A had no gold deposits, but was a strong society of hard workers. Why should Country B with enormous gold mines be wealthy for doing nothing productive (other than digging up gold)? At least with currencies, value goes where it is deserved.

  43. Matt A. Myers

    This is why you people were talking about gold today at the AVC meetup! It all makes sense now!! 😛

  44. Accounting Tutor

    Diversify! A lot of concern about the government going down. If things are so bad in the US and investment in one or more international locations (real estate or other assets) may be a good hedge too! Hopefully not all governments will go down together!

  45. Mark Essel

    I’m a firm believer in portable tangibles mixed with things like real estate. There’s always underpriced startups :). More seriously if you’re weatlhy enough to worry about catastrophic social fiscal breakdown, you can probably hire a specialist to help hedge financial meltdown. Maybe Dave Pinsen can jump in with some expert advice as my pessimistic guru.Ps missed AVC meetup but had a good excuse, snorkeling in the pacific ocean just south of Lanai off a ferry. Videos of dolphins enroute along with pics of the honeymoon are up at (love Tumblr but it has a couple of small issues).Dig their video clip by email posting (Tumblr didn’t have this ability). Also posterous handles HTML a little better by email in testing which makes my post my emailing easier for other applications.

  46. Jason Burack

    Property taxes nationwide are going up NOT down despite the fact that assets like real estate are deflating in real terms. Add in the fact that interest rates, long term, are going much higher and your million dollar building becomes worth a lot less. What happens if rent prices fall also? There is shadow inventory and a HUGE supply glut of homes and other rentable places. The worst part about real estate though is the tax increases. It is becoming vastly unprofitable to own real estate as a rental property owner. California is killing real estate investors now, there are more proposed tax increases on the table and things are getting worse in other states as well. Gold’s a store of value AND it’s way, way more liquid than real estate. There are many gold shops in this country and worldwide where you can unload your metal for close to spot price for any paper currency you want…

  47. Oli

    Nice article, but too short term for me!Gold will drop to $600 in around 3 years because its becoming a bubble at a very fast rate.People are buying what is effectively shares in Gold, so you are not actually getting anything tangible – so any advantage goes out the window!Personally, I would buy a forest somewhere politically stable (Canada or New Zealand maybe) if I wanted to keep my money safe – but that is just me!

  48. psm

    comparing gold to a business that requires management and attention is a waste of time. you could also open a pizza shop! I own apartments and I guarantee that the writer of this article owns zero apartment buildings. If you let a management company lease and manage the building, expect returns in the 2 to 3% range on your money when all is said and done.

    1. fredwilson

      I own one

  49. Andy1051

    “It does not produce any income. It is not a productive asset.”Couldn’t the same be said of Twitter and other social network/time-wasting businesses

    1. fredwilson

      well twitter does produce income. tens of millions of dollars this year andgrowing rapidlyand it probably produces an order of magnitude more income for its usersour portfolio company etsy gets more transactions via twitter than any othersource other than google and facebookthe whole “twitter is a waste of time and will never be a business” is oneof the most annoying mantras out thereit’s way wrong and i wish people would stop using it

  50. RC

    Triple Net Leases are the way to go! Pure income from reputable businesses like Walgreens, Tractor Supply Company, and many other companies! I work at a NNN company and business is booming. Take a look at how it works @

  51. tombk

    While gold may be a good investment, I never understood the concept that somehow gold represents some kind of ultimate unit of value. A fiat currency has value because collectively people have faith that other people will find it valuable. The only thing that makes gold valuable is the same thing, faith that other people will find it valuable.If there is some kind of ultimate intrinsic value in gold or other precious metals and any increase in their nominal price representing devaluation of fiat currencies, then why does the amount of gold worth an ounce of silver change? Shouldn’t that be fixed?Finally, at some point if gold became worth so much, it would be economically feasible to create gold atomically. This is already possible, just very expensive, but technology advances rapidly and it’s quite likely that “gold machines” could be made in the next 100 years.

  52. Abdul

    If you want to hedge using gold but want a productive asset, try buying a gold mine (or at least a gold mining company).Or you could try investing in companies which make gold producing tools. For example, there is currently a little-known (in the West) gold rush going on in Sudan. It started when a guy tripped over a gold nuggest, and has gotten to the point where the best gold metal detectors are going for multiples of their retail price on ebay anywhere in the world. See http://www.freedomsphoenix….That’s having noticeable effects on stocks, eg, the profit upgrade by Codan (who make the detectors mentioned above):…Anyway – wanted to point out there are better ways to get Gold exposure than buying bullion.

  53. Joe Drumgoole

    Probably a better way to invest in gold would be to invest in these guys. one of the largest holders of gold in the world.Founded by a bunch of bankers in London and consistently profitable.

  54. chrisclothier

    Fred, great article as always, the main thing for me is that even if gold is going to be a great investment, it is simply an investment that I just don’t want to own. (At the very least one ought to buy a useful metal!). An interesting question though is whether one should own shares in gold mines… The logical extension of my view is that you shouldn’t buy a factory that makes something you don’t want…But in reality it is something that I expect lots of us – including me – often do: I rarely shop at a Tesco (big UK supermarket) but its in my portfolio. Equally, I expect lots of people own Mattel even though they aren’t that keen on Barbies.

  55. flash drive

    The carrier also benefits to be mentioned that a lot. There are fewer and fewer in the digital age and the fact that you are the bearer securities Greece, Spain, Portugal, Ireland, Italy and live in the UK or U.S.. Note that the gold pretty much every currency is close to its all time high. If you fix the world especially in Asia and other emerging markets seeking Jewelry consider my assessment with their middle class will grow by exponential growth – is.