Why You Should Buy Gold?

By: Rea Lea Osaka

The financial press, and even the network news shows, have started reporting the price of gold regularly. For almost twenty years, between 1980 and 2000, the price of gold was never mentioned. There was almost no 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, 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 $256 per ounce in 2001 to over $1000 today has drawn investors and speculators into the gold market. Though many already have made handsome 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 grow as ideal 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 a crucial 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 mattress, althoughtyet not exactly the same. Both gold and dollars are considered money, and holding money does not constitute as an investment. There’s a major descrepancy 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 currency.

Holding gold is protection or insurance against government’s likehood to debase its currency. The purchasing power of gold increases not because it’s a so-called good investment; it increases in value only because the paper currency decreases 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 came about 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 severe difference, the incentive and wisdom of holding emergency funds in the form of gold becomes a no-brainer when the fiat money is being devalued. It’s more attractive than trying to save wealth in the form of a fiat currency, even when getting some nominal interest, especially when this interest often attracts the highest taxation rate. The lack of earned interest on gold is not an issue when people figure out 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.

It's probably a great idea for you to diversify a part of your savings into gold or perhaps gold-backed securities like the Gold ETF. Some financial planners advise that their clients hold 10-15% of their money in gold, although with the present market situation, I'd absolutely shoot for the high end of that range.

I especially like historical 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. For this reason I prefer old, rare gold coins, which don't really have a high premium right now. My favorites are the Napoleon Ist (circa 1800) Gold Coins

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

The author hosts a site dedicated to Living off Passive Income and is an avid Gold and Silver coin collector.

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