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Is Now A Good Time To Buy Gold?

Updated on May 10, 2010

Gold is the shiny word on every financial pundit's lips as we hurtle towards repetitive collapse of the world's financial systems. But is now a good time to buy gold? Let's explore why gold is such a good, solid investment.

First of all, let's discuss the way the financial system works and why gold is regarded as being a safer investment than liquid funds. Internationally, banks have been creating money they don't have for years now. This is an entirely legal process that is backed up by debt creation. When you go to the bank and ask for $100,000 to buy a house, the bank assesses your ability to earn that much money (plus interest) and if you can, then it grants you the loan. However, the $100,000 doesn't come from anywhere. You're not borrowing physical money from anywhere, you're buying money created when the Bank credits your account with $100,000. The money is virtual.

How can this be legal? It is legal because it works. A long time ago, banks realized that very few people ever actually removed all their money from the bank, therefore, a bank didn't actually need to have gold or holdings equivalent to the amount of money it lent. The invention of electronic banking systems, in which money can be created or lost with a few keystrokes pushed this concept further forward. In many countries, a bank is only required to hold one actual dollar for every nine they loan. In other countries, the ratio is even higher than that, and a bank with a mere $1000 in capital is able to create over $10,000 in loans on the strength of that capital. Clearly, this is a bad idea on a large scale, but unfortunately, it is the system we are dependent on worldwide.

Because the International banking system is created and sustained by ever increasing debt, virtual money that never existed in the first place, is it extremely vulnerable to collapse if people no longer honor their debts. If people fail to honor their debts en masse, you have a recession. The recent spate of foreclosures in America precipitated a loss of confidence that resonated around the globe, and many people realized just how untenable the financial system really was. A billion dollars in the bank means nothing if that billion dollars is backed up by nothing of value, that money is just 0's and 1's, entirely worthless to anyone.

Whilst the value of gold may fluctuate over time, it at least has the benefit of being a real commodity. Then again, so does every other real thing on the planet. Therefore, it is best to invest in assets that hold value over time. Gold is one such asset, but it is certainly not the only asset one can invest in. Property, if you purchase it outright and in currently underdeveloped location is also being tipped as a good investment.

If one has the necessary liquid funds, investing in gold is not a bad idea, what is most certainly a bad idea at this point in time is selling gold. Avoid Cash for Gold schemes, they seek to take that which does have value and replace it with that which has absolutely none.


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