For those individuals who have been paying attention to recent world events, there has never been a better time to invest in gold. The housing and banking crises of the recent past were unavoidable to everyone; however, those who were smart enough to hedge their portfolios with precious metals such as gold fared far better than the majority of the population.
Below are just a few of the reasons that gold has maintained its value no matter the macroeconomic circumstances, why gold is still a good buy in the current market, and what kind of performance you can expect from a substantial gold investment in the future.
They Don’t Want You To Know About Gold
Ever since the currency of the United States was taken off of the gold standard under the administration of Franklin Delano Roosevelt in response to the Great Depression, the American dollar has gradually been losing value. The dollar is known now as a Fiat currency because there is no basis other than the trust of the public that allows it to hold its value. Although this works well enough for everyday transactions, each and every person who uses the dollar as his or her means of trade is losing money by the second. For every dollar that the Federal Reserve prints, the dollars in the pockets of Americans become less and less scarce and thus less valuable. Inflation gradually erodes away at the value of all wealth and those who do not know how to keep ahead of it will certainly find themselves in dire straits without knowing exactly how they got there.
One of the best ways to hold the value of wealth is to transfer dollars into real assets that hold their value because there is a finite amount of that asset on the earth. Gold is such an asset; there is no way for man to create more gold. This means that the supply of gold is constant and the more that an individual owns, the more that individual is worth. There is no comparison to the inflation in the value of gold when compared to the inflation that erodes at the dollar constantly; as a matter of fact, gold is a great way to stave off inflation because it rises with the tide.
The Current Economic Situation
In response to the market corrections brought about by the malfeasance of the trading banks and the housing industry, the Federal Reserve initiated a program of strong “quantitative easing,” which means printing more money than normal. By some estimates, more than US $85 billion of new dollars are being pumped into the economy every month completely out of thin air. These new dollars are eroding the dollar value of every American and even foreigners who choose to trade with the dollar. As a result, many foreign countries are actually attempting to quietly relieve themselves of their burden of dollars and many small merchants in other countries have given up the practice of accepting dollars altogether.
These trends should serve as a warning to the American public that the printed dollar is not the place to hold wealth.
Trading Dollars for Gold
Many of the world’s top investors such as Warren Buffett and George Soros are quietly increasing their holdings in gold while telling the American public to remain in paper stocks and American dollars. However, because the holdings of purchases made by large investors must be made public by law, those who do the proper research will know that this is a classic attempt at a pump and dump by these large investors. The best way to preserve wealth in the current environment is to trade as many dollars for as much gold as possible.
The Process of Obtaining Gold
The government of the United States does not allow individuals to hold gold bullion directly. The United States has a history of taking gold by force from the general public when inflation threatens to spiral out of control, artificially devaluing the price and then returning the assets to the general public after it has relieved itself of interest burdens on the backs of the public. However, even this behavior by the government does not make gold bullion a bad investment. Even the government can only erode the value of gold so much because of its status as a scarce resource. However, the process of obtaining gold bullion may be a bit difficult for the average investor. An intermediary is required and payment must be made to hold the gold in a third party safe house that is registered by the government. Nonetheless, this is a great way to maintain the value of an overall portfolio.
However, there are many other ways to invest in gold without involving the government at all. Fine jewelry that contains gold such as authentic Rolex watches are a great way to own gold without having to entrust a third party to hold it by law. Many individuals will actually invest in fine watches that contain high concentrations of gold and simply place the asset in a safe deposit box in a private, local bank. Paid for in all cash, the government need not know about the purchase, and it can be accessed immediately in case of a financial emergency.
Other ways to own gold are more indirect. For instance, market speculation within gold mining companies and gold derivative stocks allow an investor to participate in the market for gold in a much more liquid way. Although options and derivatives are supposed to represent investments in actual gold, most investors who invest this way are looking to profit from the short-term fluctuations caused by market instability. These speculative investors take on more risk; however, they are able to make a great deal of money in a short period of time if they guess correctly on short term actions of the Federal Reserve or they invest in a gold mining company that happens upon a large stash of bullion.
Why You Should Buy Gold Now
Many amateur investors are trying to wait to purchase gold because of the recent run up in price over the past few years. However, the old investment adage “what goes up must come down” does not necessarily apply to finite, real assets like gold.
Gold is used primarily as a hedge against more speculative investments. Gold has a real value that cannot be destroyed by short-term market speculation. These two factors ensure stability within the market for gold at all times. If gold has a run up in price because of an adverse economic situation such as the banking and housing crisis of 2008, it will likely stay at those levels given a margin of error because of the corresponding drop in value of the dollar.
Because gold is a real, finite resource, it will hold its value and even increase should the quantitative easing efforts of the Federal Reserve cause inflation within the national and global economy. Because the Federal Reserve is making no moves to take money out of the economy, most investors in the know fully expect massive inflation at some time in the near future. This means that no matter how much gold has run its price up in the past, it will likely serve as a tremendous hedge for the inflation that everyone expects in the future. Buying gold now before this inflation hits is a good investment for anyone, no matter his or her overall financial situation.
See Monex Gold for more information on investing in gold.