Gold vs Shares and Bonds: What Each One Actually Does
Shares own a business. Bonds lend to one. Gold owns a metal. The three behave differently because they are fundamentally different things.
A share is part ownership of a business that can grow. A bond is a loan that pays interest. Gold is a lump of metal that does neither. People hold all three because they fail in different circumstances.
Key takeaways
- Shares and bonds produce income. Gold does not.
- Shares and bonds depend on someone else performing. Gold does not.
- Gold has no earnings to analyse, so it cannot be valued the way a business can.
- The argument for holding some gold is diversification, not superior returns.
Educational only
Vanhess is a jewellery shop in Coquitlam, British Columbia. We sell solid gold jewellery. We are not financial advisors, we do not sell bullion, and we do not forecast prices. This page explains how gold behaves so you can judge jewellery against bullion honestly. It is not investment advice. Talk to a licensed advisor about your own money.
Three different things
| Shares | Bonds | Gold | |
|---|---|---|---|
| What you own | Part of a business | A loan to a borrower | A physical metal |
| Income | Dividends, if paid | Interest | None |
| Can it compound? | Yes, through reinvested earnings | Yes, through reinvested interest | No |
| Counterparty risk | The company can fail | The borrower can default | None |
| Can it go to zero? | Yes | Yes, on default | No, the metal remains |
| Valuation method | Earnings, cash flow, assets | Yield and credit quality | Supply and demand only |
| Ongoing cost to hold | Usually minimal | Usually minimal | Storage and insurance |
The one property gold has that the others do not
Gold is nobody's liability. A share depends on a company continuing to exist. A bond depends on a borrower continuing to pay. A bank balance depends on the bank. A gold bar in your hand depends on nothing and nobody.
That is the entire diversification argument, and it is a real one. It is also why gold tends to be discussed most during periods when people are worried about institutions rather than about growth.
Be careful
Notice what that argument does not claim: that gold produces better returns. It claims gold fails in different circumstances from financial assets, which is a different and more modest proposition.
Frequently Asked Questions
Is gold better than stocks?
They do different jobs. Shares represent ownership of businesses that can grow earnings and pay dividends, which lets them compound over time. Gold produces no income and cannot compound, but it carries no counterparty risk and does not depend on anyone performing. Most arguments for holding gold are about diversification rather than about beating shares.
Why do people hold gold if it pays no income?
Because it fails in different circumstances from financial assets. It has no issuer who can default, no company that can go bankrupt, and no government that can print more of it. That independence is the point, and the lack of income is the price paid for it.
Can gold go to zero?
The price could fall a very long way, but the metal itself does not cease to exist or become worthless the way a bankrupt company's shares do. That is a genuine structural difference, though it is not much comfort if the price halves.