Gold As An Investment  

Gold As An Investment

The media, and even the network news shows, have begun reporting the price of gold regularly. For almost twenty years, between 1980 and 2000, the bullion price was almost never mentioned. There was little interest, and the price was either falling or stagnant.

Since 2001 however, demand in gold has spiked and so has its price. With the price now over $1000 an ounce, considerably more people are becoming interested in investing in gold and an economic indicator. A lot can be learned by understanding what the rising dollar price of gold indicates.

The rise in gold prices from $256 per ounce in 2001 to over $1000 today has drawn investors and speculators into the precious metals 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 proper 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 a vital 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 bed, 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 difference between the two however, because by holding paper money one usually loses purchasing power. The purchasing power of commodity money, i.e. gold, however, goes up if the government devalues the circulating fiat currency.

Hoarding gold is hedge or insurance against government’s likehood to debase its currency. The buying power of gold increases not because it’s a so-called good investment; it increases in value only because the paper currency goes down in value. In our present situation, that means the U.S. dollar is lossing value against gold.

One of the characteristics of commodity 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 profound 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 earning some small amount of interest, especially when this interest often attracts the highest taxation rate. The lack of earned interest on gold is not an issue once people realize 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 great idea for you to diversify a part of your savings into gold coins or even gold-backed securities like the Gold ETF. Investment Advisors advise that people hold 10-15% of their assets in gold, although with the current economic environment, I'd certainly aim for the upper end 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 Ist (circa 1800) Gold Coins

The author hosts a site dedicated to Living off Passive Income and is an avid Collector of Rare Gold Coins.

American Eagle Gold Coin
Gold Coin Dealer
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American Gold Coin