In the current economy, it is a dilemma to choose between investing in gold or stocks. This is because central bank interest rates continue to rise.
However, the financial market lately tends to be more attractive to buy bonds. This is because you can have certainty of a high return without fearing losses.
Nevertheless, many still wonder whether to allocate funds to gold or stocks. Both are indeed different.
Gold is chosen in times of war and uncertainty, but it does not necessarily provide greater investment gains. This is because when the central bank raises interest rates, the price of gold tends to decline.
On the other hand, for stocks, when the central bank raises interest rates, investors tend to choose bonds that have the certainty of high interest income without the risk of loss. So, should you allocate funds to stocks or gold ?
Produce Product and Service
The difference between stocks and gold is the product or service produced. With gold, you only have gold without producing any impact on society, while with stocks, you are supporting civilization to grow.
Ironically, the number of jobs in the gold mining industry continues to decline. For example, at Newmont, the workforce has decreased by 5.8 percent since 2010.
On the other hand, Apple's workforce continues to grow, and the products produced continue to develop to serve society. Since 2010, Apple has added jobs by 231 percent.
As for investment returns, Apple's stock was below $10 in 2010, while it is now $151, an increase of more than 1400 percent. If you had bought gold at that time, you would only have made a profit of 52 percent.
This is not even considering if you hold stocks that generate dividends. Massive stock growth cannot be ignored, and it is significant compared to a commodity like gold that does not produce any meaningful product for society.
Environmental Impact
Gold mining and processing are often associated with environmental problems, especially in the case of illegal mining.
To open new mining areas in nature, you have to alter the geological conditions. After that, you will start digging as deep as possible, and after the metal runs out, it leaves a very deep hole.
In addition, the process of refining gold uses mercury, which is a metal that can contaminate the environment, and without proper management, it can cause environmental damage.
The rise in gold prices will create many new illegal miners. Unfortunately, most of these miners do not manage their waste properly, which pollutes the environment.
Meanwhile, investing in bank stocks will continue to have an impact on society by managing the money that people save and channeling it to economic growth. The higher the bank's stock prices, the greater the impact on society.
Ease To Liquidate
Those are valid points to consider when buying an asset. The liquidity and portability of the asset are important factors to take into account.
When it comes to gold, it is easy to carry and sell in small quantities. However, it becomes more challenging to sell larger amounts of gold, as there is no official market for it.
On the other hand, selling stocks is easy and can be done through the stock exchange.
Moreover, when you need to sell gold quickly, the buyers may offer you a lower price, assuming that you are in urgent need of money. Additionally, transporting gold can be risky, as it could attract theft.
In contrast, if you want to use your asset as collateral for a loan, it is better to use stocks instead of gold. It is easier to prove ownership of stocks, and you are less likely to be scammed if you pledge them to the wrong entity. Furthermore, loans secured by gold tend to have lower loan amount compared to those secured by stocks.
Under Weather of High Interest Rate
The US Central Bank is predicted to raise interest rates again as inflation has not yet reached its target. This is important before making any decision.
If interest rates are raised, the value of the currency will continue to rise while commodities will fall, especially wealth storage commodities like gold.
In addition, with many investors shifting to bonds, demand for gold will decrease, which will affect the price of gold in the future. This is normal because high interest rates on bonds are very attractive and may not occur again in the future.
As for choosing stocks, it is generally safe unless the company you buy has a dependency on debt. Companies that are dependent on debt tend to have poor performance in the future.
If you choose stocks, make sure to choose companies with good cash reserves to maintain their business and are not dependent on debt. These types of companies will have good performance in a high interest rate environment.
