Like flight attendants do just before a flight takes off, investment advisers also need to repeat two safety announcements periodically. One is about gold and the other, obviously, about the real estate. Thankfully, the last few years have made many savers realise that treating real estate as an investment means putting your money into a bottomless pit. However, gold fever makes a periodic comeback every time gold prices show a little uptick.

This time, since the beginning of 2019, gold is up by about 20%. Given how shaky other investments have been this year, this has excited some savers. However, this is a periodic phenomena in what has otherwise been a very dull investment. The 10-year return of gold is just 8.3% at this point, which hardly justifies the volatility. In any case, the point of investing or not investing in gold is not just about the returns, but also about the source of those returns.

Indian savers are still hostage to the traditional view of gold, which is that it is a simple and useful investment, a protection against bad times and all households should invest in it. The more modern market-oriented view is that gold is a commodity to be traded just like other commodities. However, my belief is that the correct view is something else entirely. Savers can legitimately treat gold as an investment, and it has some unique features. However, it’s not a very good investment and there are always better things to do with your savings. As an investment, like any other, it must be judged according to returns, with liquidity, stability and other such factors being additional parameters. Taking all these into consideration, gold does not make sense.

The returns tend to be worse than other investments of similar risk and volatility, and this will always be the case. The reason is that gold does not actually produce anything or create any value. Any rise in its worth is based on the belief that when the time comes to sell, someone else will pay more for it. Unlike equity or bonds or bank deposits, the money that you invest in gold does not contribute to economic growth. The same amount of money put into a good business or any other productive economic activity will create wealth. However, a given quantity of gold will remain the same forever.

Readers may notice that I’m not saying that no one should ever invest in gold. I mean I’m almost saying it but not quite. However, those who are actually reading this column obviously have access to a modern financial system and they have no reason to dabble in gold. Gold makes sense only for those who have no access to or no trust in the financial system, or expect to be in such a situation. Basically, it’s an alternate currency.