By Vedran Vuk
"There have been decades of debate in finance over gold – long before the recent, rapid rise in gold prices. Some see gold as a way to diversify into an asset with less direct correlation to the overall market. Others view gold as no more than a lump of yellow metal. It produces no cash flows. How can it be possibly worth anything?
"In a way, the naysayers are right. Gold does not produce any cash flows, so that naturally makes it suspect. If someone were trying to sell me a stock that produces no cash flows and never will, I'd tell him where to stick that stock –and let me tell you it wouldn't be inside my brokerage account.
"However, any company faces this same problem with its products. Take Apple, for example. Does Apple produce cash flows and dividends? Of course it does. At the same time, its products don't do anything… they're not much different than a lump of gold. No, I'm not crazy. Your Apple iPad does not produce cash flows. Not a single cent – just like an ounce of gold. Of course, Apple sells iPads to make cash flows and dividends, but really the same is true with gold. Newmont Mining and Barrick Gold also earn cash flows and pay dividends as well by selling their product: gold. ..."
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