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6 Reasons Why Gold Is the Worst Safe Haven Asset

By    |   Tuesday, 30 June 2015 06:16 PM

If it's true that gold peaks when everything else is in the dumps, does that really make gold a safe haven asset or just the investor equivalent of hiding your valuables under a rock?

Here are a few arguments for questioning the vaunted safe haven asset status of gold.

1. It's Volatile
Gold really is not for those who prize stability. Finance writer Hal M. Bundrick calls gold "arguably the most volatile investment … on the planet," according to MainStreet. Ironically, its reputation as a safe haven — a backstop against global chaos and a hedge against equity losses — is partly why. Gold thriving in uncertain times means it can be very sensitive to its surroundings. Even little changes — or rumors of changes — in, say, interest rates or the value of the dollar can put gold on a roller-coaster.

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2. It's Divisive
Gold splits people not just economically, but ideologically. Between the conflicting opinions of investment sages, and the politicized name-calling directed at "gold bugs," it can be difficult to separate sound advice on gold from propaganda.

3. It Appeals to Fear
"What motivates most gold purchasers is their belief that the ranks of the fearful will grow," investment titan Warren Buffett wrote in his 2012 letter to Berkshire Hathaway shareholders. That belief was borne out at the time, Buffett wrote, but he added: "As 'bandwagon' investors join any party, they create their own truth — for a while."

4. There's Overhead
Even when gold was booming in 2010, Jeff Reeves of Investor Place wrote an essay that warned, "The truth is that gold has steep hidden costs," according to The Street. Pitfalls then and now include a capital gains tax rate on precious metals that's nearly double that of stocks and bonds, the premium paid on top of gold's trading price to cover mining and transport costs, and the expense incurred to safely store one's gold.

5. It Might Be a Bubble
Even gold bulls like famed investor Jim Rogers wonder when it'll be time to get out. "Gold is going to turn into a bubble eventually, and when it turns into a bubble, I hope I'm smart enough to sell it," Rogers told Sprott Money News.

6. It Just Sits There
"[B]eing neither of much use nor procreative" is how Buffett described gold in the above-mentioned 2012 letter. "True, gold has some industrial and decorative utility," he wrote, "but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end."

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If it's true that gold peaks when everything else is in the dumps, does that really make gold a safe haven asset or just the investor equivalent of hiding your valuables under a rock?
gold, worst, safe have
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2015-16-30
Tuesday, 30 June 2015 06:16 PM
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