Should You Buy Gold?

By: Rea Lea Osaka

The media, and even the network news shows, have started reporting the price of gold regularly. For almost 2 decades, between 1980 and 2000, the bullion price was almost never mentioned. There was almost no interest, and the price was either declining or remaining steady.

Since 2001 however, demand in gold has soared and so has its price. With the price well over $1000 an ounce, considerably 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 gold market. Though many already have made tremendous gains, buying gold per se should not be touted as a great investment. Considering that gold earns no interest and its quality never changes. It’s static, and does not increase as good 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 an important 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 considered money, and holding money does not qualify as an investment. There’s a major difference between the two however, since by holding paper money one usually loses purchasing power. The purchasing power of commodity money, i.e. gold, however, increases if the government devalues the circulating fiat money.

Keeping gold is hedge or insurance against government’s likehood 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 current situation, that means the U.S. dollar is weakening against gold.

One of the characteristics of commodity money (one that came about organically in business) is that it serves as a store of value. Gold and silver meet that test, while, but paper money does not. Because of this major difference, the incentive and wisdom of holding emergency funds in the form of gold becomes attractive when the fiat money is being devalued. It’s better than trying to save wealth in the form of a fiat currency, even when getting some small amount of interest, especially when this interest often attracts the highest taxation rate. The lack of earned interest on gold is not a problem when people figure out the purchasing power of their currency is declining quicker than the interest rates they might get. The purchasing power of gold can rise even faster than increases in the cost of living.

It's probably a smart idea to make sure you diversify a portion of of your savings into gold or maybe gold-backed securities like the Gold ETF. Experts advise that people hold 10-15% of their money in gold, although with the existing economic environment, I'd certainly shoot for the upper end of that range.

I particularly like collectible and rare coins instead of ordinary bullion coins. Historically, the US government has confiscated bullion coins. They do not however confiscate historic or collectible coins. That's why I prefer old, rare gold coins, which don't really have a high premium right now. My favorites are the Swiss Helvetias Gold Coins

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

The writer hosts a site dedicated to Living Off Investments and is an avid Collector of Rare Gold Coins.

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