Gold Is a Stupid Investment? Not Really But the Claim Might be

Gold Is a Stupid Investment? No, YoBut The Statement Is

“They say gold is a ‘stupid investment,’ but history suggests that viewpoint isn’t just wrong—it’s downright reckless.”

Jan 24, 2025

Gold invokes strong emotions. On one hand, critics hurl insults, calling it “worthless,” “non-yielding,” and “archaic.” On the other, devotees revere gold as the ultimate financial sanctuary—a timeless store of value immune to the storms of inflation, market panics, and political strife. The debate, however, often misses a more nuanced truth: gold’s cyclical nature. When timed well, gold can yield spectacular gains, especially if you can exploit mass psychology and technical analysis. Add in the strategic use of options—specifically, selling puts and buying calls—and investors can tap into “free leverage” on gold stocks. This essay dismantles the notion that “gold is a stupid investment,” revealing instead how an intelligent, balanced, and, yes, somewhat daring approach to gold can deliver robust returns. The real folly is dismissing an asset class that has repeatedly soared against the backdrop of crises, currency devaluation, and collective investor frenzy.

THE ORIGINS OF THE “STUPID INVESTMENT” LABEL

Many who call gold “stupid” point to perceived shortcomings: gold yields no dividends; it gathers dust in vaults; it’s subject to the whims of sentiment. Granted, gold’s fundamental value is tied neither to corporate earnings nor direct economic output—critiques famously advanced by certain billionaire investors. They claim gold is idle. Yet they overlook gold’s historic role as “real money” long before fiat currencies existed. Across centuries, both peasants and kings have found solace in gold’s tangible, enduring worth. That does not mean gold magically ascends in a straight line forever. Still, it explains why major institutions—central banks, sovereign wealth funds, and large asset managers—allocate a portion of their portfolios to gold as an insurance policy.

Critics also fail to embrace nuance: what if you can opportunistically trade gold rather than hoard it? Indeed, gold’s cyclical highs and lows often surpass the returns of many traditional assets during certain phases. As inflation creeps or confidence in government policy erodes, gold’s appeal surges. Perhaps the bigger question isn’t “Does gold do anything?” but “How can an investor exploit gold’s natural volatility?”

GOLD’S CYCLICAL PATTERNS: FAD OR FUNDAMENTAL?

Gold’s price history reveals distinct booms and busts, reflecting mass psychology and macroeconomic forces rather than random price points. Consider the following episodes:

The 1970s Boom: After the collapse of the Bretton Woods system in 1971, the dollar was no longer pegged to gold at $35/oz. Doubts about paper money soared, spiking inflation, and gold shot up to nearly $200/oz by the mid-1970s. That was merely the start. Fuel crises, recessionary fears, and loose monetary policy propelled gold above $800/oz by 1980.
The Long Slump: As interest rates stabilized in the 1980s and disinflation took hold in the 1990s, gold drifted downward. Central banks decided to offload portions of their holdings, depressing prices. By the late 1990s, gold hovered in the low $300s—an era known for tech stocks overshadowing anything else. Then came the dot-com crash and subsequent global financial jitters.
The 2000s to 2011 Rally: Post-9/11 uncertainty and the 2008 financial collapse fueled a massive run in gold. Investors panicked about currency debasement, quantitative easing, and potential banking failures. Gold soared, peaking around $1,900/oz by 2011.
Correction and Recovery: From 2012 to around 2015, gold retraced some gains, dropping near $1,050 at its lowest in late 2015. Pessimism flooded in—an environment reminiscent of the 1980s slump. Then geopolitical tensions, virus pandemics, and persistent low interest rates reignited gold’s attractiveness, surpassing $2,000 in 2020.

In each case, gold responded to shifts in economic reality and mass sentiment. The pattern is cyclical—when inflation expectations are subdued and confidence in equities soars, gold slumps. Gold rallies when real interest rates fall or fear grips the world. Investors who track these cycles can buy at depressed levels and sell when euphoria peaks—those ignoring the cycle entirely risk calling gold “stupid” right before it stages another breakout.

MASS PSYCHOLOGY: FUELING GOLD’S PRICE SURGES

Gold’s recurring popularity is a prime example of mass psychology in action. The metal invokes primal instincts: when economies look frail, or governments seem to mismanage monetary policy, people bolt for gold. They interpret it as a “safe harbour,” creating sudden spikes in demand. This can feed on itself: the more prices climb, the more onlookers assume a meltdown is at hand, drawing further capital into gold markets. The effect intensifies in times of crisis. For instance, during the global financial meltdown of 2008, gold soared as banks collapsed and economic forecasts turned dire. Media headlines hammered home the narrative of an “unfinished meltdown,” a perfect storm of fear accelerating gold’s momentum.

Conversely, complacency is gold’s nemesis. When stocks rally strongly, and inflation remains contained, the crowd forgets about crises. They chase higher-yielding assets, labelling gold a “pet rock.” Prices drift, or slump as capital rotates into equities. That is precisely when contrarian-minded investors may quietly accumulate bullion or gold stocks, anticipating the next cyclical shift. The psychological cycle—fear to greed to fear—repeats with uncanny regularity, and gold is often a major beneficiary on the fear end of the spectrum.

TIMING GOLD: WHY “BUY-AND-HOLD FOREVER” ISN’T ALWAYS BEST

While some see gold as a long-term store of value, a buy-and-hold-forever mentality can forfeit significant gains. Why? Because gold thrives in distinct macro conditions and flounders in others. You can capture the upside by “trading” gold over months or years and avoid protracted slumps. In 1980, after gold famously peaked above $800, the metal spent the next two decades drifting downhill. Investors who clung stubbornly faced meagre returns, inflation notwithstanding. Meanwhile, those who had sold near the top and waited for lower prices re-entered opportunistically in the early 2000s, reaping a new rally that topped out in 2011.

In more recent times, gold’s break above $2,000 in 2020 was partly fueled by pandemic-driven anxiety. Some traders locked in gains near that psychological milestone, while others envisioned indefinite upward flight. By mid-2021, gold had corrected well below $1,800. That’s not a condemnation of gold—merely evidence that cyclical trading strategies can outperform a rigid buy-hold approach. The art lies in tracking sentiment, real interest rates, and technical signals to gauge when gold might pivot.

TECHNICAL ANALYSIS: ILLUMINATING GOLD’S TRENDS

Technical analysis can help refine entry and exit points in gold markets. Traders look at price patterns, support/resistance levels, and momentum oscillators to anticipate changes in trends.

Support and Resistance: Gold often respects certain price levels. For instance, a zone around $1,200–$1,250 acted as multi-year support in the mid-2010s. Identifying these “floors” allows traders to enter near established safety nets. Resistance zones—like $1,900 or $2,000—can be psychological ceilings that, if convincingly broken, signal new bull phases.
Moving Averages: Crossovers of the 50-day- and 200-day moving averages capture mid- or long-term momentum shifts. A “golden cross” (50-day crossing above the 200-day) often signals a bullish change, while the reverse warns caution.
Candlestick Patterns: Bullish engulfing bars or hammer formations can hint at imminent reversals from local lows. Conversely, a shooting star near a resistance line may foreshadow a downturn. Combine these patterns with fundamental events—interest rate announcements or inflation reports—to strengthen conviction.
Volume Clues: Volume spikes often align with major rational or emotional responses. During a flight to safety, gold futures volume can explode, ratifying the seriousness of the fear. Low-volume breakouts, meanwhile, might be suspect, lacking mass participation.

Technical analysis doesn’t guarantee success, but it gives structure, helping filter out emotional noise. When the crowd panics into gold at nosebleed prices, chart indicators often show overbought signals. This can deter chasing the herd. Conversely, when gold languishes near multi-year lows with rising volume, it may hint at an under-the-radar accumulation.

MASS PSYCHOLOGY MEETS MACRO: CATALYSTS FOR GOLD

Gold doesn’t soar in a vacuum. Macro catalysts typically ignite each new rush. Some of the most common triggers:

Inflation Fears: As currency purchasing power erodes, gold is seen as a store of real value. If central banks print money aggressively, many suspect an inflation wave—gold leaps on that expectation alone, whether or not the wave fully materializes.
Rate Cuts: Reduced interest rates lower the opportunity cost of holding non-yielding assets like gold. If bonds yield next to nothing, gold’s “zero yield” no longer looks so bad. Ultra-low or negative rates in certain economies have historically propelled gold.
Currency Devaluation: If the dollar, euro, or yen weakens sharply, the relative value of gold can climb (especially if priced in that currency). Emerging market crises also stoke local demand for stabilizing assets.
Geopolitical Shocks: Wars, trade conflicts, or political upheaval breed uncertainty, fueling a gold bid. After episodes such as Brexit, gold rallied on investor anxiety over currency realignments and trade disruptions.
Stock Market Collapses: A meltdown in equities can push capital into gold, although short-term liquidity panics can sometimes force institutions to sell gold to cover margin calls. Over time, though, a sustained equity bear market typically helps gold.

Understanding how these macro catalysts align with mass psychology is the foundation for discerning gold’s cyclical upswings. Investors who preempt major policy shifts or can “smell fear” in market sentiment can position themselves advantageously before chaos erupts.

GETTING “FREE LEVERAGE” ON GOLD STOCKS

Leveraging gold price movements needn’t mean re-mortgaging the house to buy futures. A more nuanced approach is trading options on gold mining stocks or gold ETFs. Two core strategies stand out:

A) Selling Puts

Suppose you believe a particular gold mining stock is undervalued or set to benefit from a gold rally. You can sell (write) put options at a strike price below the current market price. If the stock stays above that strike by expiration, you pocket the premium—like free income. If the stock dips below the strike, you’ll be assigned the shares, but effectively at a discount (the strike price minus the premium you received). You still come out ahead if your fundamental thesis is correct and the stock rebounds. While not without risk, this tactic can provide a creative entry to gold stocks. You’re effectively paid for your willingness to buy a stock you favour at a lower price.

B) Buying Calls

Conversely, purchasing call options on gold stocks leverages your capital. For a relatively small premium, you control a larger share block. If gold (and the associated stock) surges, your call options can explode in value, delivering outsized returns. You do risk losing the premium if the stock languishes or declines, but you avoid the deeper losses of holding the stock directly through a slump. This approach suits traders anticipating a near- to mid-term bull run in gold or a specific catalyst (like falling interest rates or an upcoming mine expansion).

Combining these two strategies—selling puts at levels you’d be happy to buy and buying calls for upside torque—can yield a near “free leverage” effect. The premium earned on sold puts can offset part of the cost of buying calls, creating a more balanced position. Of course, discipline is key: if you are a gold crater, you can face assignments and losses. But for those skilled in reading the cyclical wave of gold, the net effect could be a low-cost wedge into gold’s volatility.

PRACTICAL EXAMPLES

Consider a scenario from 2018 to 2019, when gold hovered around $1,200–$1,300 after a sluggish period. Analysts flagged potential rate cuts if economic growth wavered. Some contrarians felt the Federal Reserve would eventually pivot to looser monetary policy, igniting gold. Selling puts on a mid-tier mining stock—say Barrick Gold or Newmont—and allows entry if the stock drops. Simultaneously, an investor could buy calls near the money with six- to twelve-month expirations, anticipating a rally. Indeed, as 2019 progressed, the Fed cut rates, global recession fears mounted, and gold soared above $1,500. Mining stocks followed, with some climbing 40–50%. The calls surged in value, and the sold puts often expired worthless or were closed out at a profit.

Another prime illustration came in mid-2020. The COVID-19 crisis hammered global economies, forcing massive stimulus packages. Fear peaked, gold broke the $2,000 mark. Traders close to the peak who recognized momentum was unsustainable might have sold calls for a premium or rotated out of positions before the subsequent dip. Meanwhile, contrarians who missed or mistrusted the rally waited for the correction back near $1,800 or below before reloading for the longer inflation narrative.

A LOOK AT COMMON OBJECTIONS

Doubters maintain that gold is a “useless metal,” generating no income. They claim we live in a digital age, so tokens, cryptocurrencies, or risk assets overshadow gold’s relevance. Here’s the counter:

Gold’s unique role as crisis insurance remains unmatched. Cryptocurrencies are far more volatile and largely untested in deep global stagflation. Stocks can crumble in recessions. Government bonds can lose real value if inflation outstrips yields. Gold, though not perfect, regularly reemerges as a fallback.
Gold can be monetized. One can lend gold, hold gold futures, mine gold, or use gold ETFs that track price movements. Plus, gold stocks often pay small dividends. “Low yield” isn’t always zero.
Cyclical speculation is profitable. Even if you believe gold’s minimal functional utility hampers it, the constant waves of fear and greed keep it moving. A self-fulfilling prophecy ensures that gold’s cyclical booms remain as long as humans respond to the fear of currency debasement.

Hence, the real “stupidity” might be ignoring a proven cyclical asset because it doesn’t fit some neat definition of yield. Many successful investors carve out at least a modest gold allocation or treat it as a dynamic trading instrument. The age-old “stupid” argument overlooks these tactics.

RISK MANAGEMENT AND POSITION SIZING

None of this is to say gold is risk-free. Overcommitting to gold can be costly if global growth roars and inflation stays tame. A meltdown in gold can also occur if confidence in paper assets rebounds in a big way, forcing quick rotations out of “safe havens.” That’s why investors typically limit gold exposure to a portion of their portfolio—5–15%. That figure can be higher for risk-tolerant traders playing cyclical surges, but only if guided by strong conviction and robust risk controls.

Option strategies introduce their complexities: if you sell puts, be prepared to buy shares if assigned. If you buy calls, be willing to lose 100% of the premium if the rally never materializes. Adopting a balanced approach—maybe a few leaps (long-duration call options) for a potential wave of inflation, offset by some sold puts you genuinely want executed—helps maintain a measure of safety. This balanced posture also ensures you’re not purely gambling on gold’s immediate direction; you’re profiting from time decay and volatility mispricings.

THE LONG HAUL: GOLD BEYOND THE RHETORIC

Repeatedly, gold has proven its critics wrong during crises. As recently as the early 2000s, gold hovered near $250/oz, with many pronouncing it a “dead” asset in the new digital century. By 2011, it had reached $1,900. Even adjusting for inflation, that rally turned heads. Similarly, during the pandemic-induced meltdown, gold soared again above $2,000. The cycle rarely repeats identically, but the line of causation remains: when confidence in the status quo wobbles, gold gets a bid.

Yet, one must also note that gold can stagnate or sink for years in calmer times. The 1980–2000 slump or 2012–2015 correction punished undisciplined holders. The lesson? Rhetoric labelling gold “stupid” or “brilliant” is too simplistic. Gold is cyclical, psychologically potent, and demands strategy. The winners see it as a powerful piece of the puzzle rather than a single, unwavering solution.

CONCLUSION: EMBRACE THE CYCLE, LEVERAGE THE FEAR

If the statement “Gold is a stupid investment” were universally correct, the metal would have faded into irrelevance centuries ago. Instead, gold remains a bedrock of central bank reserves worldwide, a headline mover amid every major crisis, and a recurring champion in inflationary contexts. The real folly is viewing gold as a static hold or a worthless relic, ignoring the cyclical nature that can produce staggering rallies. You can trade gold advantageously by blending technical analysis—pinpointing strategic entries and exits—with an understanding of mass psychology. Meanwhile, well-constructed option strategies (selling puts, buying calls) deliver a shot of “free leverage,” letting you profit from the swings without enormous outlays.

The upshot? Gold’s value is not merely in an eternal uptrend but in recurrent booms triggered by collective anxiety, policy missteps, or unexpected black swan events. Critics fixate on gold’s lack of dividends but forget that returns can come from capital appreciation if you buy low and sell high—precisely what cyclical, psychologically driven assets like gold are known for. History’s pages are littered with headlines proclaiming gold’s demise, followed shortly by periods where gold soared to new heights while equities faltered.

So, is gold truly “stupid”? Hardly. It’s cyclical, volatile, and psychologically charged—traits that reward disciplined navigation. Time the cycle right, harness the crowd’s vacillating fears, and you can flip an often-maligned investment into a strategic windfall. That is far from foolish. It’s opportunistic, prudent, and a testament to why gold still matters after thousands of years. And likely, it always will.

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Gold Is a Stupid Investment? No, YoBut The Statement Is “They say gold is a ‘stupid investment,’ but history suggests ...