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A Reasonable Question about Gold

Corey —  August 15, 2011 — 15 Comments

Gold Bars by Mark Herpel on Flickr       On Friday, Free Money Finance posted a link to Sound Mind Investing’s new and free ebook about investing in gold. You can sign up to get the ebook here if you’re interested. I’ve been reading about this issue of gold, inflation, and the declining dollar for a bit now so I thought I’d check it out.

       After reading it, I headed back to FMF’s site to leave a comment and was pleased to find an insightful comment from Rick Francis who writes at Pondering Money. Rick’s question was this: If you believe that the dollar will weaken, political gridlock will continue, and that these are bad things, why not hedge against inflation with something that hasn’t had a “meteoric” (as SMI puts it) price increase? And while you’re at it, why not choose a commodity that actually has practical uses like oil, real estate, or food? (Or if you’re really worried, shotgun shells and bottled water…my words, not Rick’s.)

       Take, for example, copper. Copper has a large number of practical applications while gold has only a limited few. Now I’m not saying copper is the right choice. I’m just giving you an example. Oil could be another good example.

       Here’s another one: real estate. Or even better, how about real estate with a commodity on it – land with standing timber. Again, I’m not saying these are the ideal alternatives for gold. Rather, I’m simply trying to make the point that there are some other commodities that you can make a better case for investing in than gold. So don’t try to take me to task for a possibly poor choice of replacements. The question still stands: can we find no better, more useful, more reasonably priced commodity to use as a hedge against inflation than gold?