10 June 2011

Investment: Gold Acts as A Safe Heaven During Crisis?

Here is my point of view about one feedback from my previous post, i.e. Investment: Gold Vs Stock Market - Can we eat gold for survive?
The feedback:
"We can not say we can eat gold for survive.But we can say gold is the way with the help of which we can survive.In this economic crisis of market gold is only way to invest and it acts as a safe heaven during crisis. Gold has an intrinsic value that never fades."
My views:
I do agree that gold has an intrinsic value that never fades. In fact, it is just like any other raw materials, e.g. silver, diamond and wood. But the question is - How do we assess or evaluate the intrinsic value of gold?

To answer this question, firstly, let's see how do we assess the intrinsic value of a company in stock market investment. Intrinsic value of a company can be assessed based on the company profitability, prospect, financial condition etc. And then, if its market value is less than its intrinsic value, it may be a good deal for us to invest it and vice versa. But this approach seems cannot be applied in gold investment.

Next, let's assume that there are two group of people in this world, i.e. a group that has lots of gold and a group that has lots of land in this world. Then, which group would you like to join for the rest of your life? Gold group or Land group?

For me, I would like to join Land group. This is because I know the fact that I can generate unlimited of goods, e.g. fruit and vegetable, from a piece of land from time to time. In fact, every business has similar principle like Land group, i.e. generate more value thing from their assets (e.g. machine, knowledge, human capital). Gold, on the other hand, is a raw material and can generate nothing alone.
Obviously, what we should invest is an asset which can generate more valuable thing from time to time. That is why we can use Return Of Asset (ROA) as one of investment assessment tools to determine whether it is a good deal or not.

Yes, economic crisis is very dangerous and horror for everyone. And we should remember that there does not have ZERO RISK investment tool in this world. The risks of Gold investment for me are - I have no idea how to assess its intrinsic value and Gold can generate nothing for me from time to time.

Again, every material has its intrinsic value that never fades. But the question is - Do you buy it at the price under its intrinsic value or much higher than its intrinsic value.
That's all for today. More fascinating articles and sharing will be updated from time to time in Xaivier Blog. So, you are welcome to subscribe our feed, look at our sitemap or simply visit our Homepage.

Written by: Xaivier Chia


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