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Investing In Gold. . .

02/20/11

Gold (Au on the periodic table) has long been recognized as a symbol of wealth and a store of value all throughout human history. Gold standards have long provided a basis for monetary policy. Gold is essentially money and has long been the world's monetary tender.

There's approximately 165,000 tonnes of gold that has been mined in human history as of 2009. The world consumption of gold produced is an estimated 50% in jewelry, 40% in investments, and 10% in industry. The precious metal has very little industrial application and is primarily used as a trading commodity or luxury. The only industries’ renown to make use of gold is in dentistry and computer electronics. Gold has traditionally found use because of its good resistance to oxidative corrosion and excellent quality as a conductor of electricity.

Whether gold is a good investment today is a subject matter I find a tad iffy. If it were just two to three years ago, I would have said most definitely. Gold's dramatic increase in price the past few years can simply be attributed to the precious metal being undervalued relative to paper money. It's rich history as a backup monetary policy no doubt also contributed to its subsequent increase in value. The demand for gold increases during difficult economic times. It's important to understand that there's essentially no shortage in gold supply, and that the metal has very little, if any, practical value. In fact, production has not grown in relation to the world's economies. Today, gold mining output is declining. With the sharp growth of economies in the 20th century, and increasing foreign exchange, the world's gold reserves and their trading market have become a small fraction of all markets and fixed exchange rates of currencies to gold were no longer sustained.

Currently, gold has been hovering around $1300 to $1450 and has had difficulty breaking the $1500 barrier. The truth of the matter is I have sold all my gold two years ago. I have replaced it with either copper or silver and haven't looked back. I'm now looking at palladium with little interest reinvesting into gold. So is gold still a good investment? Perhaps it's now a bad investment?

I would say whether or not gold is still a good investment depends on the individual. Gold is stable, and suffers less volatility than silver or copper. Gold has monetary security in the sense that it's long been historically recognized as an exchange. If the economy were to completely collapse tomorrow, there's a stronger chance your gold could be used as money versus say silver or copper. Is this greater chance for monetary security worth the probable profitability loss if you say switched to silver or copper? That's up to you to decide.

What I will say is that gold is a safe investment, and in this economy that's probably good enough for most people. Gold is great for that conservative investor who wants to see steady increases and wants to hedge nasty inflation. Gold is for that person who doesn't want to glue their eyes to a computer screen and grind their teeth anxiously looking at graphs and charts. I would recommend gold for that person who plans to retire in ten to fifteen years. In many ways, gold can act as a superior version of a treasury bond, but don't expect to make any big bucks off of the precious metal like people did when they bought into it five years ago.

Gold is probably not so good for the entry level investor because to be quite frank it's price for entry is very high. Even if you could afford a few pieces, you would be tying up a significant amount of your assets toward a conservative investment when you should be taking some risks at this stage in your life. Perhaps getting around 20% of your portfolio into gold for the sake of achieving better security in the event of economic collapse is a decent trade off, but if you can't invest into a single 1oz bullion at 20% or lower of your total assets than don't bother.

This brings me to my next topic: how should you invest in gold? You should invest into gold with physical bullion. Don't rely on paper or electronic numbers to invest into your gold. It's a conservative investment right now, so you won't be needing the liquidity in paper or megabytes anyway. Refusing to take the time to get the bullion losses the opportunity to make use of a gold exchange when times get tough. What types of bullion should you buy? Any 1oz coin/round from a respectable dealer will do. Don't buy the 1/4oz or 1/2oz bullion coins/rounds, as they lose significant value compared to the 1oz coin. In the long run, you're essentially blowing a lot of money away in face value. Face value is the fee you pay in having the coin produced and manufactured. You're much better off meticulously saving your money to buy the 1oz bullion piece by piece. A lot of dealers try to con people who can't yet afford to buy a 1oz coin immediately. They claim that the 1/4oz coin and the 1/2oz coins have the same returns on investment. This simply isn't true. Because I suspect the investment of gold to be conservative and gradual in nature, buying gold in 1/4oz increments may seriously hamper your investment.

-Donovan D. Westhaver

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amillar profile image

amillar 4 years ago from Scotland, UK

Hi DonDWest,

Do you know if there's anything in the rumour that a new gold standard is planned for January 1st 2013?

http://www.angelnexus.com/o/web/39807

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