How to Make an Income Through Gold
One of the most common objections to an investment in gold is the fact that gold doesn’t pay a dividend. It just “sits there,” and because of this, it evokes the “greater fool” theory from skeptics — that “the only reason to buy gold is so that you can find another sucker to sell it to at a higher price.”
Nevertheless, since the beginning of the 21st century, gold has outperformed virtually all income-generating assets. The reason for this is that gold retains its value, while fiat currencies such as dollars and euros do not: Central banks can create as much of these currencies as they want to, and it doesn’t really matter how much dividend income you can generate if the currency you are being paid in is losing value. Thus, so long as the rate of interest is lower than the rate at which fiat currencies are losing value, it makes sense to hold gold.
While this is a fairly straightforward principle, investors still want income with their gold. One solution is to buy gold miners. After all, these are businesses that, if run property, generate free cash flow and pay income to stock holders. There are many gold mining companies that do this. However, several of them cut their dividends last year as the price of gold fell, while the cost of mining it did not. Some examples include:
- Kinross Gold (NYSE:KGC)
- Barrick Gold (NYSE:ABX)
- Newmont Mining (NYSE:NEM)
- Agnico Eagle Mines (NYSE:AEM)
The list goes on, but the point is made.