Where Does Money Go to Die?
The smart people at the Economist reported that India’s love of gold jewelry is straining its balance of payments, and the piece raises the larger, and global, question: is gold hoarding a drag on the economy, essentially stuffing large sums under the mattress rather than investing or lending them out?
Of course, the same could be said for collecting art (but you get to enjoy it), baseball cards (ditto) and other collectables: your money sits, rather than funding a smart startup, a dividend-paying conglomerate or a bank that, we hope, is behaving itself.
Yes, in the case of gold, the return on investment, if one sells, has been terrific, if for no other reason than more and more people have latched onto apocalyptic fears about the economy, becoming, well, gold bugs (thank you, Glenn Beck). Warren Buffett, in last year’s letter to Berkshire Hathaway (BRK.B) shareholders, took time to both explain the knuckleheadedness of gold investing and to mock those who do it. He nicely explains how gold doesn’t do anything, but farmland and Exxon (XOM) stock, as investments, do lots.
David Einhorn, shortly after that, stood up for gold in a separate missive to investors. Einhorn’s piece was less persuasive, as far as logic goes, but he had gold’s price performance on his side.
It’s doubtful that there’s globally a shortage of capital. Our periodic asset balloons suggest there is too much capital, and too few opportunities to productively invest. Ergo, gold amazing rise and early-2000’s home prices and late-1990s Internet stocks.
Jeff Bailey, The Editor of YCharts, is a former reporter, editor and columnist at the Wall Street Journal and New York Times. He can be reached at firstname.lastname@example.org.