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Is it time to buy gold?

Gold has been a store of wealth for thousands of years. It has been used as currency and as a separate asset.

It’s hard to think of another asset, except for (farm)land that has been growing in value as long as gold has.

Investors seem to think of gold as a safe haven away from volatility. When shares and property go down in value, gold seems to go up.

Does this mean that now is a good time to buy gold? Predictions are everywhere of Australian property doom and a US economic growth slowdown. Recessions and downturns regularly happen, they are unavoidable.

The idea of buying actual physical gold bars sounds fun. However, the logistics of storing it and keeping it secure seems like a waste of time.

Despite gold’s impressive habit of going up when other assets go down, that’s just about all it’s good for. Gold doesn’t do anything. It doesn’t generate cashflow. That’s a key difference between gold and good assets over the long-term.

Businesses grow their profit over the long-term – they grow in value and pay out larger dividends.

Property generally goes up in value and can command higher rent over time.

Gold just sits there. Doing nothing. No interest, no dividends. It just goes up and down in value. Over the ultra-long-term analysis shows gold has barely kept up with inflation.

A slightly better idea than physical gold could be gold miners like Newcrest Mining Limited (ASX: NCM) and St Barbara Ltd (ASX: SBM). Whilst I think these are better options, I don’t necessarily think they’re good options either. They are beholden to the typical resource issues like capital costs and unreliable resource prices.

Foolish takeaway

If you really think a meltdown is around the corner then I think cash would be the best option over the short-term.

However, over the long-term it’s shares that have produced the best returns, including through downturns. It’s impossible to predict when the next downturn will be, so it’s best not to try. Instead, it’s better to stick with quality long-term growth shares like Challenger Ltd (ASX: CGF) and REA Group Limited (ASX: REA).

Another quality share to think about instead of gold is this defensive share which could increase its profit even quicker in troubled times.

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Motley Fool contributor Tristan Harrison owns shares of Challenger Limited. The Motley Fool Australia owns shares of and has recommended Challenger Limited. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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