Gold: The safe haven that earns nothing

For thousands of years, gold has kept its value. It does not rust, it does not wear out, and there is not much of it.

In finance, it is called a safe haven. When fear rises, many investors turn to it.

In two thousand eight, the major stock markets lost more than a third of their value. Gold ended the year slightly up.

That is its great quality: it depends on no company, no bank, no state. It cannot go bankrupt.

But a safe haven is not a miracle investment. The story of nineteen eighty shows it.

The seventies were the years of inflation. Prices soared, and gold with them.

In January nineteen eighty, an ounce reached eight hundred and fifty dollars. Everybody wanted some.

Then Paul Volcker, head of the American central bank, raised rates to nearly twenty per cent to break inflation.

Suddenly, a savings account paid a lot. And gold, which pays nothing, lost its appeal.

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The price collapsed. Around two thousand, an ounce fell below three hundred dollars. A fall of more than sixty per cent.

Whoever bought at the top had to wait until two thousand eight to get their price back. Without even counting inflation.

During those years, central banks were selling their gold. It seemed to belong to the past.

Since two thousand ten, they have become buyers again. And since two thousand twenty-two, they buy more than one thousand tonnes a year.

Why? To depend a little less on the dollar, and hold an asset no other country can freeze.

But here is what gold does not do: it pays nothing. No interest, no dividend, no rent.

A share gives you a slice of the profits. A bond, coupons. A gold bar stays a gold bar.

For the example: ten thousand euros invested at three per cent for ten years becomes thirteen thousand four hundred and thirty-nine euros.

To do as well, gold has to gain more than thirty-four per cent over the same period. Just to break even.

And keeping it costs money: a safe, insurance, or management fees if you go through a fund.

So all of its return comes from one thing: that someone, later, pays more for it.

What works for gold is fear, inflation and low rates. When rates rise sharply, it suffers.

Gold sometimes protects, but it never works. It is insurance, not an engine.