Tags: bogle | gold | investing

Bogle: Gold Just ‘Speculation,’ Has No ‘Intrinsic Value’

By Michael Kling   |   Friday, 02 Sep 2011 07:39 AM

Gold isn’t an investment at all, Vanguard founder and former CEO John Bogle says.

"Gold is a speculation,” he told CNNMoney. “It has absolutely no underlying intrinsic value," said the financial guru known for promoting low-cost, index-based mutual funds.

Both stocks and bonds have internal rates of return. Stocks have dividends. Bonds have interest payments. If you buy gold, you only have the bet that someone else will pay more for it than you did.

John Bogle
(Vanguard file photo)
Even that prospect is questionable, Bogle said, saying gold's value has gone so high that he is skeptical that it will continue rising.

Holding about 1 percent to percent, or even 5 percent, of your assets in gold, he added, "is not the worst idea in the world but I wouldn't do it myself or recommend it."

Gold reached a record $1,916.90 an ounce last week before dropping by about $120 an ounce, prompting speculation of a gold bubble, wrote Steven M. Davidoff a columnist for The New York Times.

Speculation is clearly driving gold values, but many investors are buying it to hedge against inflation and stock market volatility.

The problem for regulators, Davidoff noted, is that spotting bubbles before it's too late is extremely difficult.

Speculators, not investors, are driving gold values, said Bogle, who stressed the difference between investors and speculators. The extreme stock market volatility in August was caused by speculators trying to win quick gains from the latest economic or political news.

Meanwhile, Bogle has definite advice for investors:

Try to ignore the noise. Advice in life is usually to take action, but when it comes to investing, the rule should be: Don't do something. Just stand there.

The economy faces a 50-50 chance of a double-dip recession, Bogle said.

Nevertheless, investors should stand pat. If you're investing for the long term, for lifetime or 20 years, you should expect recessions and boom times. Trying time those market turns is impossible.

Average investors should avoid high-frequency trading. "It's not a zero-sum game. It's a loser's game," he warned, comparing it to gambling. "You can't play it. The cards are stacked against you."

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