Why doesn't Graham consider gold as an investment?
"During Graham's career, gold and currency were the same thing because of the gold standard. Graham did not advise investing in currencies, only in bonds and stocks, the latter only for intelligent speculation. Graham died a couple of years after Nixon closed the gold window, ending the gold standard.  Gold may be thought of as a currency even today, as endowments and other investors use it as a store of value or for diversification of risks. However, currency or commodities investing does not seem Graham-like. How could you reliably estimate intrinsic value of a currency or commodity, so that you can have a Graham-like margin of safety after subtracting the intrinsic value from the market value?  Saying that gold is ""clearly underpriced in today's market"" is just hand-waving. A Graham analysis such as ""net net"" (valuing stocks by their current tangible assets net of all liabilities) is a quantitative analysis of accounting numbers audited by CPAs and offers a true margin of safety."
"I'll take a stab at this question and offer a disclosure: I recently got in RING (5.1), NEM (16.4), ASX:RIO (46.3), and FCX (8.2).  While I won't add to my positions at current prices, I may add other positions, or more to them if they fall further.  This is called catching a falling dagger and it's a high risk move. Cons (let's scare everyone away) Pros The ECB didn't engage in as much QE as the market hoped and look at how it reacted, especially commodities.  Consider that the ECB's actions were ""tighter"" than expected and the Fed plans to raise rates, or claims so.  Commodities should be falling off a cliff on that news. While most American/Western attention is on the latest news or entertainment, China has been seizing commodities around the globe like crazy, and the media have failed to mention that even with its market failing, China is still seizing commodities.  If China was truly panicked about its market, it would stop investing in other countries and commodities and just bail out its own country.  Yet, it's not doing that.  The whole ""China crisis"" is completely oversold in the West; China is saying one thing (""oh no""), but doing another (using its money to snap up cheap commodities). Capitalism works because hard times strengthen good companies.  You know how many bailouts ExxonMobil has received compared to Goldman Sachs?  You know who owns more real wealth?  Oil doesn't get bailed out, banks do, and banks can't innovate to save their lives, while oil innovates.  Hard times strengthen good companies.  This means that this harsh bust in commodities will separate the winners from the losers and history shows the winners do very well in the long run. Related to the above point: how many bailouts from tax payers do you think mining companies will get?  Zero.  At least you're investing in companies that don't steal your money through government confiscation. If you're like me, you can probably find at least 9 people out of 10 who think ""investing in miners is a VERY BAD idea.""  What do they think is a good idea?  ""Duh, Snapchat and Twitter, bruh!""  Then there's the old saying, ""Be greedy when everyone's fearful and fearful when everyone's greedy."" Finally, miners own hard assets.  Benjamin Graham used to point this out with the ""dead company"" strategy like finding a used cigarette with one more smoke.  You're getting assets cheap, while other investors are overpaying for stocks, hoping that the Fed unleashes moar QE!  Think strategy here: seize cheap assets, begin limiting the supply of these assets (if you're the saver and not borrowing), then watch as the price begins to rise for them because of low supply.  Remember, investors are part owners in companies - take more control to limit the supply.  Using Graham's analogy, stock pile those one-puff cigarettes for a day when there's a low supply of cigarettes. Many miners are in trouble now because they've borrowed too much and must sell at a low profit, or in some cases, must lose.  When you own assets debt free, you can cut the supply.  This will also help the Federal Reserve, who's been desperately trying to figure out how to raise inflation.  The new patriotic thing to do is stimulate the economy by sending inflation up, and limiting the supply here is key." If you want a concrete investment tip, precious metals (e.g. gold, silver) are on a pretty good run these days, personally I still think they have ways to go as there are just too many problems with modern monetary policy of an almost existential nature, and gold and silver are better stores of value than fiat money. Silver is particularly hot right now, but keep in mind that the increased volatility means increased risk. If the Fed keeps its foot on the pedals of the dollar printing press and we get QE3 this summer, that will most likely mean more people piling into the PMs to hedge against inflation. If the Fed starts to tighten it's policy then that's probably bad news for both equities and bonds and so PMs could be seen as a safe haven investment. These are the main reasons why PMs take up a good portion of my portfolio and will continue to do so untill I see how the global economy plays out over the next couple of years. "Currency, like gold and other commodities, isn't really much of an investment at all. It doesn't actually generate any return. Its value might fluctuate at a different rate than that of the US dollar or Euro, but that's about it. It might have a place as a very small slice of a basket of global currencies, but most US / European households don't actually need that sort of basket; it's really more of a risk-management strategy than an investment strategy and it doesn't really reflect the risks faced by an ordinary family in the US (or Europe or similar). Investments shouldn't generally be particularly ""exciting"". Generally, ""exciting"" opportunities mean that you're speculating on the market, not really investing in it. If you have a few thousand dollars you don't need and don't mind losing, you can make some good money speculating some of the time, but you can also just lose it all too. (Maybe there's a little room for excitement if you find amazing deals on ordinary investments at the very bottom of a stock market crash when decent, solid companies are on sale much cheaper than they ordinarily are.)" The problem I have with gold is that it's only worth what someone will pay you for it.  To a degree that's true with any equity, but with a company there are other capital resources etc that provide a base value for the company, and generally a business model that generates income. Gold just sits there. it doesn't make products, it doesn't perform services, you can't eat it, and the main people making money off of it are the folks charging a not insubstantial commission to sell it to you, or buy it back.  Sure it's used in small quantities for things like plating electrical contacts, dental work, shielding etc. But Industrial uses account for only 10% of consumption.  Mostly it's just hoarded, either in the form of Jewelry (50%) or 'investment' (bullion/coins) 40%.  Its value derives largely from rarity and other than the last few years, there's no track record of steady growth over time like the stock market or real-estate. Just look at what gold prices did between 10 to 30 years ago, I'm not sure it came anywhere near close to keeping pace with inflation during that time.  If you look at the chart, you see a steady price until the US went off the gold standard in 1971, and rules regarding ownership and trading of gold were relaxed.  There was a brief run up for a few years after that as the market 'found its level' as it were, and you really need to look from about 74 forward (which it experienced its first 'test' and demonstration of a 'supporting' price around 400/oz inflation adjusted.  Then the price fluctuated largely between 800 to 400 per ounce (adjusted for inflation) for the next 30 years. (Other than a brief sympathetic 'Silver Tuesday' spike due to the Hunt Brothers manipulation of silver prices in 1980.)  Not sure if there is any causality, but it is interesting to note that the recent 'runup' in price starts in 2000 at almost the same time the last country (the Swiss) went off the 'gold standard' and gold was no longer tied to any currency (or vise versa)   If you bought in '75 as a hedge against inflation, you were DOWN, as much as 50% during much of the next 33 years.  If you managed to buy at a 'low' the couple of times that gold was going down and found support around 400/oz (adjusted) then you were on average up slightly as much as a little over 50% (throwing out silver Tuesday) but then from about '98 through '05 had barely broken even.  I personally view 'investments' in gold at this time as a speculation.  Look at the history below, and ask yourself if buying today would more likely end up as buying in 1972  or 1975? (or gods forbid, 1980)  Would you be taking advantage of a buying opportunity, or piling onto a bubble and end up buying at the high?  Note from Joe - The article Demand and Supply adds to the discussion, and supports Chuck's answer. Gold is traded on the London stock exchange (LSE) and the New York stock exchange (NYSE) under various separate asset tickers, mainly denominated in sterling and US dollars respectively.  These stocks will reflect FX changes very quickly.  If you sold LSE gold and foreign exchanged your sterling to dollars to buy NYSE gold you would almost certainly lose on the spreads upon selling, FX'ing and re-buying. In short, the same asset doesn't exist in multiple currencies.  It may have the same International Securities Identification Number (ISIN), but it can trade with different Stock Exchange Daily Official List (SEDOL) identifiers, reflecting different currencies and/or exchanges, each carrying a different price at any one time. The Bible of fundamental analysis was written by Graham and Dodd, and is titled Security Analysis. If you don't know the name Benjamin Graham, Warren Buffet was his student and attribute his own success to Graham.  If Security Analysis is a bit too intense for you, Graham also wrote The Intelligent Investor which is probably a better starting point. "Been a long while since I've read it but if I remember correctly with quotational loss Graham refers to an unjustified decline in stock price because of Mr. Market's fear and loathing where the business prospects of the company are actually still sound.  This is opposed to ""actual"" loss of capital which he would consider to be a company going bankrupt or just more generally turning out to have way worse business prospects than expected with the justified decline in stock price that entails." I apply what you term 'money' to the word 'commodity'. And I agree with littleadv, you are just selling us your perspective on (such things as) precious metals.  What I want you to think about is these truths: When used as currency gold just has two values: utility value and currency value. I hold it is better to separate the two.  There is not enough gold in the earth to represent the value in aggregate economies of the world. Trying to go back to the gold standard would only induce an unimaginable hyperinflation in gold.  Recent years shows that gold does not retain value. See the linked chart.