As the earnings season comes to end with most of the major US companies having reported Q4:16 results, a look at fourth quarter corporate profits reflects an increase of 4.6 percent, with 2017 forecasted to show earnings growth of 11.1 percent on a 5.8 percent increase in revenue. In addition to good corporate results, the economy is picking up as well, with the Atlanta Fed forecasting GDP to climb 2.7 percent in the first quarter of 2017. Confidence measures are high as well, with consumers and businesses showing optimism. These data points makes a compelling case to own equities. But gold, viewed as a haven asset, which often trades in the opposite direction of equities, has been on an upswing lately.

Gold futures have climbed 2.9% in February and have gained about 7.8% year to date compared to the S&P 500 which is up 2.5% in February and 3.8% so far this year. The fact that gold is rising along with stocks is puzzling. A number of factors may be contributing to the rise. Inflation has been edging up and gold tends to be used as hedge against inflation. Dollar that had been strong, has lately weakened and has prompted buyers of gold using other currencies. Geopolitical uncertainty, with elections in France and destabilization of the eurozone, has added to the attraction to gold as well. Finally, with confusion and tumult as the Trump train makes its way along the twisting tracks in Washington, people are looking for gold to make the ride less bumpy.

Should investors buy gold shares or gold ETF now?

Future Wealth’s View

Gold stocks may be shining now, but over the long run, we simply do not see the value compared to owning company stocks. While companies, over the decades, probably have delivered billions of dollars in dividends to its shareholders and also hold assets worth many more billions, precious metals, specifically gold, produce no dividends and have no inherent asset value.

Besides, price of gold (now at $1235.80 an ounce) has been in retreat since hitting a record $1,888.70 an ounce in 2011 and investors who bought gold in the past six years and didn’t sell it are still carrying losses, while those who purchased equities are sitting on lofty gains.

There is a concept in investing called the Greater Fool Theory. It states that irrespective of how high a stock is at the time you buy into it, there’s always a greater fool who will buy it from you at a higher price. The greater fool theory works perfectly until the face in the mirror is the greatest fool. Things get very painful from there. Chasing any stock or commodity, in this case – gold, without a fundamental basis for owning the investment, is a losers game.