Why You Should Buy Gold?

By: Rea Jet

The media, and even the network TV shows, have started reporting the price of gold regularly. For almost twenty years, between 1980 and 2000, the bullion price was hardly mentioned. There was little interest, and the price was either declining or remaining steady.

Since 2001 however, demand in gold has spiked along with its price. With the price now over $1000 an ounce, a lot 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 $250 per ounce in 2001 to over $1000 today has drawn investors and speculators into the precious metals market. Though many already have made tremendous profits, buying gold per se should not be touted as a great investment. After all, gold earns no interest and its quality never changes. It’s static, and does not increase as sound investments should.

It’s more precise 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 similar to converting one’s savings into one hundred dollar bills and hiding them under the bed, althoughtyet not exactly the same. Both gold and dollars are favored as money, and holding money does not constitute as an investment. There’s a large descrepancy between the two however, because by holding paper money one loses purchasing power. The purchasing power of commodity money, i.e. gold, however, goes up if the government devalues the circulating fiat currency.

Buying gold is hedge or insurance against government’s ideal 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 decreases in value. In our present situation, that means the U.S. dollar is lossing value against gold.

One of the characteristics of gold-backed money (one that came about naturally in the marketplace) is that it serves as a store of value. Gold and silver meet that test, while, but paper money does not. Because of this severe 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 more attractive 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 much higher rate than the interest rates they might earn. 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 bullion or even gold-backed securities like the Gold ETF. Experts recommend that their clients hold 5-15% of their money in gold, although with the current economic situation, I'd absolutely aim for the top of that range.

I particularly like historical and rare coins instead of regular bullion coins. Historically, the US government has confiscated bullion coins. They do not however confiscate historic or collectible coins. For this reason I prefer old, rare gold coins, which don't really have a high premium right now. My favorites are the Napoleon Era Gold Coins

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

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

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