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Gold gets mentioned quite a bit here in CAPS - and a lot of Fools have a lot of opinions, so I thought I'd share mine.

 

Gold is one thing I've never invested in, and I don't have any plans to start now. Sure, I do have one underperform call on a gold play (though it's more of a 'junk business' play than a gold play), and one outperform call on a Brazilian company that has some mining operations, but gold, as an investment? Not for this Fool.

 

The reason?

 

While gold is a great inflation hedge, that's about all it is in my opinion. When one invests in gold, one is not investing in what I call an economically generative act. Gold bullion just sits there, and while it can go up or down in price, it doesn't actually *create* wealth.

 

Companies, however, do create wealth by taking a bunch of inputs, and adding value - with the output of greater value to the business, and society, than were the inputs. In the long run, investments (like businesses) that actually *create* wealth are going to prove to be far, far better investments, in my view, than things like gold bullion which don't.

 

Now, this isn't to say that mining companies don't create wealth. They most certainly do. They add value by taking a resource of little value (gold buried under the earth's surface) and add value by extracting it and turning it into something far more useful (gold above ground that can be used to make jewelry, among other things).

 

So if I ever were going to invest in gold or other precious metals, I'd do so via investing in mining companies. At least there, in addition to the fluctuation in gold prices, I'd be investing in an economically generative act - and one that should, in the long run, if one chooses the right company, outperform an investment in gold itself.

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