1. Gold does not earn any interest

True. But contrary to paper money gold is a true storage of wealth.

After president Nixon closed the gold window in 1971 the US dollar has lost more than 80 percent of its purchasing power. Today with one ounce of gold you can still buy the same underlying basket like in the year 1980.

Ask yourself: What is the value of interest payments if they will be taxed away both by income tax and through inflation?

Gold does not inflate like paper money. This is the reason it will not earn any interest.

2. During deflation gold is a bad investment

The collapse of the investment bank Lehman Brothers in September 2008 has destroyed several ten trillion dollars worth of paper wealth. Many asset classes like crude oil, platinum and copper have been heavily impacted.

However during that time period the impact to the gold price was remote. By year end the gold price has fully recovered from the deflation period caused by Lehman’s bankruptcy.

Actually this crisis has proven that gold is the only deflation insensitive asset class.

3. Gold is a bubble and too expensive

If money supply balloons due to excessive deficit spending its purchasing power will erode. In order to buy the same basket of goods you must spend more money. This is commonly known as inflation.

Because gold is a storage of wealth its price must increase together with the additional money supply. Even if you believe in government statistics gold needs to be priced today at $2,300 per ounce based on year 1980 data.

Using the more accurate inflation data from John Williams at shadowstats.com gold should be priced in the range between $7,000 and $10,000 instead.

Gold is neither a bubble nor it is too expensive. Actually it is still a bargain.