Pros/cons for buying gold vs. saving money in an interest-based account?
"As Michael McGowan says, just because gold has gone up lots recently does not mean it will continue to go up by the same amount. This plot:  shows that if your father had bought $20,000 in gold 30 years ago, then 10 years ago he would have slightly less than $20,000 to show for it. Compare that with the bubble in real estate in the US:  Update: I was curious about JoeTaxpayer's question: how do US house prices track against US taxpayer's ability to borrow?  To try to answer this, I used the house price data from here, the 30 year fixed mortgages here and the US salary information from here. To calculate the ""ability to borrow"" I took the US hourly salary information, multiplied by 2000/12 to get a monthly salary. I (completely arbitrarily) assumed that 25 per cent of the monthly salary would be used on mortgage payments.  I then used Excel's ""PV"" (Present Value) function to calculate the present value of the thirty year fixed rate mortgage. The resulting graph is below.  The correlation coefficient between the two plots is 0.93.  There are so many caveats on what I've done in ~15 minutes, I don't want to list them... but it certainly ""gives one furiously to think"" !! Update 2:  OK, so even just salary information correlates very well with the house price increases.  And looking at the differences, we can see that perhaps there was a spike or bubble in house prices over and above what might be expected from salary-only or ability-to-borrow." "There's too much here for one question. So no answer can possibly be comprehensive.  I think little of gold for the long term. I go to MoneyChimp and see what inflation did from 1974 till now. $1 to $4.74. So $200 inflates to $950 or so. Gold bested that, but hardly stayed ahead in a real way. The stock market blew that number away. And buying gold anytime around the 1980 runup would still leave you behind inflation.  As far as housing goes, I have a theory. Take median income, 25% of a month's pay each month. Input it as the payment at the going 30yr fixed rate mortgage. Income rises a bit faster than inflation over time, so that line is nicely curved slightly upward (give or take) but as interest rates vary, that same payment buys you far more or less mortgage. When you graph this, you find the bubble in User210's graph almost non-existent.  At 12% (the rate in '85 or so) $1000/mo buys you $97K in mortgage, but at 5%, $186K. So over the 20 years from '85 to 2005, there's a gain created simply by the fact that money was cheaper. No mania, no bubble (not at the median, anyway) just the interest rate effect. Over the same period, inflation totaled 87%. So the same guy just keeping up with inflation in his pay could then afford a house that was 3.5X the price 20 years prior.  I'm no rocket scientist, but I see few articles ever discussing housing from this angle. To close my post here, consider that homes have grown in size, 1.5%/yr on average. So the median new home quoted is actually 1/3 greater in size in 2005 than in '85. These factors all need to be normalized out of that crazy Schiller-type* graph. In the end, I believe the median home will always tightly correlate to the ""one week income as payment.""  *I refer here to the work of professor Robert Schiller partner of the Case-Schiller index of home prices which bears his name." Just because gold performed that well in the past does not mean it will perform that well in the future.  I'm not saying you should or should not buy gold, but the mere fact that it went up a lot recently is not sufficient reason to buy it. Also note that on the house, an investment that accrues continuous interest for 30 years at an annual rate of about 7.7% will multiply by a factor of 10 in 30 years.  That rate is pretty high by today's standards, but it might have been more feasible in the past (I don't know historical interest rates very well).  Yet again note that the fact that houses went up a lot over the last 30 years does not mean they will continue to do so. What you are seeing is the effects of inflation. As money becomes less valuable it takes more of it to buy physical things, be they commodities, shares in a company's stock, and peoples time (salaries).  Just about the only thing that doesn't track inflation to some degree is cash itself or money in an account since that is itself what is being devalued.  So the point of all this is, buying anything (a house, gold, stocks) that doesn't depreciate (a car) is something of a hedge against inflation. However, don't be tricked (as many are) into thinking that house just made you a tidy sum just because it went up in value so much over x years. Remember 1) All the other houses and things you'd spend the money on are a lot more expensive now too; and 2) You put a lot more money into a house than the mortgage payment (taxes, insurance, maintenance, etc.) I'm with the others though. Don't get caught up in the gold bubble. Doing so now is just speculation and has a lot of risk associated with it.
"Given the current low interest rates - let's assume 4% - this might be a viable option for a lot of people.  Let's also assume that your actual interest rate after figuring in tax considerations ends up at around 3%.  I think I am being pretty fair with the numbers. Now every dollar that you save each month based on the savings and invest with a higher net return of greater than 3% will in fact be ""free money"".  You are basically betting on your ability to invest over the 3%.  Even if using a conservative historical rate of return on the market you should net far better than 3%.  This money would be significant after 10 years.   Let's say you earn an average of 8% on your money over the 10 years.  Well you would have an extra $77K by doing interest only if you were paying on average of $500 a month towards interest on a conventional loan.  That is a pretty average house in the US.  Who doesn't want $77K (more than you would have compared to just principal).  So after 10 years you have the same amount in principal plus $77k given that you take all of the saved money and invest it at the constraints above. I would suggest that people take interest only if they are willing to diligently put away the money as they had a conventional loan.  Another scenario would be a wealthier home owner (that may be able to pay off house at any time) to reap the tax breaks and cheap money to invest. Pros: Cons: Sidenote:  If people ask how viable is this.  Well I have done this for 8 years.  I have earned an extra 110K.  I have smaller than $500 I put away each month since my house is about 30% owned but have earned almost 14% on average over the last 8 years.  My money gets put into an e-trade account automatically each month from there I funnel it into different funds (diversified by sector and region).  I literally spend a few minutes a month on this and I truly act like the money isn't there.  What is also nice is that the bank will account for about half of this as being a liquid asset when I have to renegotiate another loan." Gold's valuation is so stratospheric right now that I wonder if negative numbers (as in, you should short it) are acceptable in the short run.  In the long run I'd say the answer is zero.  The problem with gold is that its only major fundamental value is for making jewelry and the vast majority is just being hoarded in ways that can only be justified by the Greater Fool Theory.  In the long run gold shouldn't return more than inflation because a pile of gold creates no new wealth like the capital that stocks are a claim on and doesn't allow others to create new wealth like money lent via bonds.  It's also not an important and increasingly scarce resource for wealth creation in the global economy like oil and other more useful commodities are. I've halfway-thought about taking a short position in gold, though I haven't taken any position, short or long, in gold for the following reasons: Straight up short-selling of a gold ETF is too risky for me, given its potential for unlimited losses. Some other short strategy like an inverse ETF or put options is also risky, though less so, and ties up a lot of capital.  While I strongly believe such an investment would be profitable, I think the things that will likely rise when the flight-to-safety is over and gold comes back to Earth (mainly stocks, especially in the more beaten-down sectors of the economy) will be equally profitable with less risk than taking one of these positions in gold. Gold is a commodity.  It has a tracked price and can be bought and sold as such.  In its physical form it represents something real of signifigant value that can be traded for currency or barted.  A single pound of gold is worth about 27000 dollars. It is very valuable and it is easily transported as opposed to a car which loses value while you transport it.  There are other metals that also hold value (Platinum, Silver, Copper, etc) as well as other commodities.  Platinum has a higher Value to weight ratio than gold but there is less of a global quantity and the demand is not as high.  A gold mine is an investement where you hope to take out more in gold than it cost to get it out.   Just like any other business.  High gold prices simply lower your break even point. TIPS protects you from inflation but does not protect you from devaluation.  It also only pays the inflation rate recoginized by the Treasury.  There are experts who believe that the fed has understated inflation.  If these are correct then TIPS is not protecting its investors from inflation as promised.   You can also think of treasury bonds as an investment in your government.  Your return will be effectively determined by how they run their business of governing.  If you believe that the government is doing the right things to help promote the economy then investing in their bonds will help them to be able to continue to do so.  And if consumers buy the bonds then the treasury does not have to buy any more of its own. Well, people have been saying interest rates have to go up for years now and have been wrong so far.  Also there is an opportunity cost in waiting to buy - if another five years passes with nothing happen, you earn 0% on checking accounts, but at least earn 1.65% per year or so on your 10y bond. "Invest in gold. Maybe will not ""make"" money but at least preserve the value." Gold's value starts with the fact that its supply is steady and by nature it's durable. In other words, the amount of gold traded each year (The Supply and Demand) is small relative to the existing total stock. This acting as a bit of a throttle on its value, as does the high cost of mining. Mines will have yields that control whether it's profitable to run them. A mine may have a $600/oz production cost, in which case it's clear they should run full speed now with gold at $1200, but if it were below $650 or so, it may not be worth it. It also has a history that goes back millennia, it's valued because it always was. John Maynard Keynes referred to gold as an archaic relic and I tend to agree. You are right, the topic is controversial. For short periods, gold will provide a decent hedge, but no better than other financial instruments. We are now in an odd time, where the stock market is generally flat to where it was 10 years ago, and both cash or most commodities were a better choice.  Look at sufficiently long periods of time, and gold fails. In my history, I graduated college in 1984, and in the summer of 82 played in the commodities market. Gold peaked at $850 or so. Now it's $1200. 50% over 30 years is hardly a storehouse of value now, is it? Yet, I recall Aug 25, 1987 when the Dow peaked at 2750. No, I didn't call the top. But I did talk to a friend advising that I ignore the short term, at 25 with little invested, I only concerned myself with long term plans. The Dow crashed from there, but even today just over 18,000 the return has averaged 7.07% plus dividends. A lengthy tangent, but important to understand. A gold fan will be able to produce his own observation, citing that some percent of one's holding in gold, adjusted to maintain a balanced allocation would create more positive returns than I claim. For a large enough portfolio that's otherwise well diversified, this may be true, just not something I choose to invest in. Last - if you wish to buy gold, avoid the hard metal. GLD trades as 1/10 oz of gold and has a tiny commission as it trades like a stock. The buy/sell on a 1oz gold piece will cost you 4-6%. That's no way to invest. Update - 29 years after that lunch in 1987, the Dow was at 18448, a return of 6.78% CAGR plus dividends. Another 6 years since this question was asked and Gold hasn't moved, $1175, and 6 years' worth of fees, 2.4% if you buy the GLD ETF. From the '82 high of $850 to now (34 years), the return has a CAGR of .96%/yr or .56% after fees. To be fair, I picked a relative high, that $850. But I did the same choosing the pre-crash 2750 high on the Dow. "IRAs have huge tax-advantages. You'll pay taxes when you liquidate gold and silver. While volatile, ""the stock market has never produced a loss during any rolling 15-year period (1926-2009)"" [PDF]. This is perhaps the most convincing article for retirement accounts over at I Will Teach You To Be Rich. An IRA is just a container for your money and you may invest the money however you like (cash, stocks, funds, etc). A typical investment is the purchase of stocks, bonds, and/or funds containing either or both. Stocks may pay dividends and bonds pay yields. Transactions of these things trigger capital gains (or losses). This happens if you sell or if the fund manager sells pieces of the fund to buy something in its place (i.e. transactions happen without your decision and high turnover can result in huge capital gains). In a taxable account you will pay taxes on dividends and capital gains. In an IRA you don't ever pay taxes on dividends and capital gains. Over the life of the IRA (30+ years) this can be a huge ton of savings. A traditional IRA is funded with pre-tax money and you only pay tax on the withdrawal. Therefore you get more money upfront to invest and more money compounds into greater amounts faster. A Roth IRA you fund with after-tax dollars, but your withdrawals are tax free. Traditional versus Roth comparison calculator. Here are a bunch more IRA and 401k calculators. Take a look at the IRA tax savings for various amounts compared to the same money in a taxable account. Compounding over time will make you rich and there's your reason for starting young. Increases in the value of gold and silver will never touch compounded gains. So tax savings are a huge reason to stash your money in an IRA. You trade liquidity (having to wait until age 59.5) for a heck of a lot more money. Though isn't it nice to be assured that you will have money when you retire? If you aren't going to earn it then, you'll have to earn it now. If you are going to earn it now, you may as well put it in a place that earns you even more. A traditional IRA has penalties for withdrawing before retirement age. With a Roth you can withdraw the principal at anytime without penalty as long as the account has been open 5 years. A traditional IRA requires you take out a certain amount once you reach retirement. A Roth doesn't, which means you can leave money in the account to grow even more. A Roth can be passed on to a spouse after death, and after the spouse's death onto another beneficiary. more on IRA Required Minimum Distributions." "Nobody can give you a definitive answer.  To those who suggest it's expensive at these prices, [I'd point to this chart](http://treo.typepad.com/.a/6a0120a6002285970c014e8c39f2c3970d-850wi) showing the price of gold versus the global money supply over the past decade or so.  It's not conclusive, but it's evidence that gold tracks the money supply relatively well.  There might be a bit of risk premium baked in that it would shed in a stable economy, but that premium is unknowable.  It's also (imo) probably worth the protection it provides.  In an inflationary scenario (Euro devaluation) gold will hold its buying power very well.  It also fares well in a deflationary environment, just not quite as well as holding physical currency.  Note that in such an environment, bank defaults are a big danger: that 50k might only be safe under your mattress (rather than in a fractionally reserved bank account).  If you're buying gold, certificates aren't exactly a bad option, although there still exists the counterparty risk of the agent storing your gold, as well as political risk of the nation where it's being held.  Buying physical bullion ameliorates these risks, but then you face the problem of protecting it.  Safe deposit boxes, a home safe, or burying it in your backyard are all possible options.  The merits of each, I'll leave as an exerice to the reader.  Foreign currency might be a little bit better than the Euro, but as we've seen in the past year or so, the Swiss Franc has been devalued to match the Euro in the proverbial ""race to the bottom"".  It's probably not much better than another fiat currency.  I don't know anything about Norway.  Edit: Depending on your time horizon, my personal opinion would be to put no less than 5-10% of your savings in a hard store of value (e.g. gold, silver, platinum).  Depending on your risk appetite, you could probably stand to put a lot more into it, especially given the Eurozone turmoil.  Of course, as with anything else, your mileage may vary, past performance does not guarantee future results, this is not investment advice, seek professional medical help if you experience an erection lasting longer than four hours." "The general argument put forward by gold lovers isn't that you get the same gold per dollar (or dollars per ounce of gold), but that you get the same consumable product per ounce of gold. In other words the claim is that the inflation-adjusted price of gold is more-or-less constant. See zerohedge.com link for a chart of gold in 2010 GBP all the way from 1265. (""In 2010 GBP"" means its an inflation adjusted chart.) As you can see there is plenty of fluctuation in there, but it just so happens that gold is worth about the same now as it was in 1265. See caseyresearch.com link for a series of anecdotes of the buying power of gold and silver going back some 3000 years. What this means to you: If you think the stock market is volatile and want to de-risk your holdings for the next 2 years, gold is just as risky If you want to invest some wealth such that it will be worth more (in real terms) when you take it out in 40 years time than today, the stock market has historically given better returns than gold If you want to put money aside, and it to not lose value, for a few hundred years, then gold might be a sensible place to store your wealth (as per comment from @Michael Kjörling) It might be possible to use gold as a partial hedge against the stock market, as the two supposedly have very low correlation" "First of all, bear in mind that there's no such thing as a risk-free investment. If you keep your money in the bank, you'll struggle to get a return that keeps up with inflation. The same is true for other ""safe"" investments like government bonds. Gold and silver are essentially completely speculative investments; over the years their price tends to vary quite wildly, so unless you really understand how those markets work you should steer well clear. They're certainly not low risk. Repeatedly buying a property to sell in a couple of years time is almost certainly a bad idea; you'll end up paying substantial transaction fees each time that would wipe out a lot of the possible profit, and of course there's always the risk that prices would go down not up. Buying a property to keep - and preferably live in - might be a decent option once you have a good deposit saved up. It's very hard to say where prices will go in future, on the one hand London prices are very high by historical standards, but on the other hand supply is likely to remain severely constrained for years to come. I tend to think of a house as something that I need one of for the rest of my life, and so in one sense not owning a house to live in is a gamble that house prices and rents won't go up substantially. If you own a house, you're insulated from changes in rent etc and even if prices crash at least you still have somewhere to live. However that argument only works really well if you expect to keep living in the same area under most circumstances - house prices might crash in your area but not elsewhere." "I don't think there is a recession proof investment.Every investment is bound to their ups and downs.  If you buy land, a change in law can change the whole situation it may become worthless, same applies for home as well.  Gold - dependent on world economy.  Stock - dependent on world economy Best way is to stay ever vigilant of world around you and keep shuffling from one investment to another balance out your portfolio.  ""The most valuable commodity I know of is information."" - Wall Street -movie" "I pretty much only use my checking. What's the downside? Checking accounts don't pay as much interest as savings account. Oh, but wait, interest rates have been zero for nearly 10 years. So there is very little benefit to keeping money in my savings account. In fact, I had two savings accounts, and Well Fargo closed one of them because I hadn't used it in years. Downsides of savings accounts: You are limited to 5 transfers per month into or out of them. No such limit with checking. Upsides of savings accounts: Well, maybe you will be less likely to spend the money. Why don't you just have your pay go into your checking and then just transfer ""extra money"" out of it, rather than the reverse? If you want to put money ""away"" so that you save it, assuming you're in the U.S.A., open a traditional IRA. Max deposit of $5500/year, and it reduces your taxable income. It's not a bad idea to have a separate account that you don't touch except for in an emergency. But, for me, the direction of flow is from work, to checking, to savings." "It may seem like you cannot live without this trip, but borrowing money is a bad habit to get into.  Especially for things like vacations.  Your best bet is to save up money and only ever pay cash for things that will decrease in value.  Please note that while it is a bad idea to borrow money for things that decrease in value, the ""opposite"" is not necessarily true.  That is, it is not necessarily a good idea to borrow money for things that will increase in value; or, will earn you income. False assumptions can cloud our judgement.  The housing bubble and the stock market crash of 1929 are two examples, but there are many others." "Don't put all your eggs in one basket and don't assume that you know more than the market does. The probability of gold prices rising again in the near future is already ""priced in"" as it were. Unless you are privy to some reliable information that no one else knows (given that you are asking here, I'm guessing not), stay away. Invest in a globally diversified low cost portfolio of primarily stocks and bonds and don't try to predict the future.  Also I would kill for a 4.5% interest rate on my savings. In the USA, 1% is on the high side of what you can get right now. What is inflation like over there?" "Two points:    One, yes -- the price of gold has been going up. [gold ETF chart here](http://www.google.com/finance?chdnp=1&amp;chdd=1&amp;chds=1&amp;chdv=1&amp;chvs=maximized&amp;chdeh=0&amp;chfdeh=0&amp;chdet=1349467200000&amp;chddm=495788&amp;chls=IntervalBasedLine&amp;q=NYSEARCA:IAU&amp;ntsp=0&amp;ei=PQhvUMjiAZGQ0QG5pQE)  Two, the US has confiscated gold in the past.  They did it in the 1930s.    Owning antique gold coins is stupid because you're paying for gold + the supply / demand imbalance forced upon that particular coin by the coin collector market.  If you want to have exposure to gold in your portfolio, the cheapest way is through an ETF.  If you want to own physical gold because a) it's shiny or b) you fear impending economic collapse -- you're probably better off with bullion from a reputable dealer.  You can buy it in grams or ounces -- you can also buy it in coins.  Physical gold will generally cost you a little more than the spot price (think 5% - 10%? -- not really sure) but it can vary wildly.  You might even be able to buy it for under the spot price if you find somebody that isn't very bright willing to sell.  Buyer beware though -- there are lots of shady folks in the ""we buy gold"" market."