Gold As An Investment

By: Jet Lee

The media, and even the network TV shows, have begun reporting the price of gold regularly. For almost twenty years, between 1980 and 2000, the bullion price was rarely mentioned. There was little interest, and the price was either falling or stagnant.

Since 2001 however, demand in gold has jumped along with its price. With the price now over $1000 an ounce, many more people are becoming interested in investing in gold and an economic indicator. Much can be learned by understanding what the rising dollar price of gold foretells.

The rise in gold prices from under $300 per ounce in 2001 to over $1000 today has drawn investors and speculators into the precious metals market. Though many already have made obscene gains, buying gold per se should not be touted as a good investment. Considering that gold earns no interest and its quality never changes. It’s static, and does not increase as proper investments should.

It’s more accurate to say that one might invest in a gold or silver mining company, where management, labor costs, and the nature of new discoveries all play a crucial role in determining the quality of the investment and the profits made.

Buying gold and holding it is somewhat analogous to converting one’s savings into one hundred dollar bills and hiding them under the mattress, althoughtyet not exactly the same. Both gold and dollars are favored as money, and holding money does not count as an investment. There’s a large descrepancy between the two however, because by holding paper money one usually loses purchasing power. The purchasing power of commodity money, i.e. gold, however, escalates if the government devalues the circulating fiat currency.

Hoarding gold is protection or insurance against government’s tendency to debase its currency. The purchasing power of gold goes up not because it’s a so-called good investment; it goes up in value only because the paper currency goes down in value. In our present situation, that means the U.S. dollar is weakening against gold.

One of the characteristics of gold-backed money (one that originated organically in business) is that it must serve as a store of value. Gold and silver meet that test, while, but paper money does not. Because of this profound difference, the incentive and wisdom of holding emergency funds in the form of gold becomes smarter when the official currency is being devalued. It’s better than trying to save wealth in the form of a fiat currency, even when earning some small amount of interest. The lack of earned interest on gold is not a problem once people realize the purchasing power of their currency is declining quicker than the interest rates they might earn. The purchasing power of gold can rise even faster than increases in the cost of living.

Article Source: http://www.find-investment-advice.com

The writer hosts a site dedicated to Investing & Passive Income[livingoffdividends.com] and is a gold bug and an avid gold and silver coin collector.

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