molifeney.com

People have been buying and selling gold for almost as long as the earth’s creation. The ancient Egyptians buried the Pharaoh’s with gold ornaments because gold doesn’t rust or decay. In the US, one of the primary reasons for western migration was because of the gold rush. Most monetary systems were built on the gold standard. Over time the use of gold has faded because of the increased reliance on paper currency but gold still remains a solid investment for the following reasons:

Bank & Credit fears: The price of gold and the level of uncertainty regarding banks is directly correlated. If people fear a bank failure, then it is possible(but highly unlikely these days) that a bank run will occur. This makes gold more desirable to hold.

Increased inflation: In Germany in the 20’s and in Zimbabwe today, paper currency was basically worthless. As a matter of fact Germans used the currency to light their stoves. As people feel that their dollars are worth less and less the value of gold increases.

Low or negative real interest rates:  If the return on bonds, equities and real estate is not adequately compensating for risk and inflation then the demand for gold and other alternative investments such as commodities increases.

Decreased value of the American dollar: Put shortly, investors have choices. When faced with investing in the depreciating dollar vs. gold, most would choose gold.

Now that you know the Why’s here is how

Buying gold bullion or bars: While this is probably the least efficient way to buy gold, it definitely has to be the most fun. I get giddy just thinking about building my own mini Fort Knox at my house. Keep in mind that once you buy the gold you have to find a way to keep it safe and undamaged. Also gold in the physical form is very illiquid, meaning you can’t easily sell it once bought.

Gold mutual funds and ETF’s: The Street Tracks Gold ETF (GLD) represents one tenth of an ounce of gold and replicates the movement of the underlying Commodity. There is also the iShares Comex Gold Trust (IAU) that operates in the same fashion. Another route to take is to invest in mutual funds that own companies involved in the mining and exploration of gold and precious metals. These companies give you exposure to the gold market but not 100%(which may not be a bad thing)

Keep in mind that gold can be very volatile so don’t have more than 5-10% in your Portfolio.

Comments (0)

Subscribe to this comment's feed

Name

Email

Website

Title

Comment

smaller | bigger

Subscribe via email (Registered users only)

I have read and agree to the Terms of Usage.

Write the displayed characters

Add Comment