What The Price Of Gold Tells You  

What The Price Of Gold Tells You

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

Since 2001 however, interest 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. A lot can be learned by understanding what the rising dollar price of gold foretells.

The rise in gold prices from under $300 per ounce in 2001 to over $1000 today has drawn investors and speculators into the gold market. Though many already have made tremendous gains, buying gold per se should not be touted as a good investment. After all, gold earns no interest and its quality never changes. It’s static, and does not increase as ideal 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 favored as money, and holding money does not constitute as an investment. There’s a large descrepancy between the two however, since 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 protection or insurance against government’s tendency 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 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 must serve as a store of value. Gold and silver meet that test, while, but paper money does not. Because of this large difference, the incentive and wisdom of holding emergency funds in the form of gold becomes smarter when the paper currency is being devalued. It’s smarter than trying to save wealth in the form of a fiat currency, even when earning some nominal interest. 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.

The author hosts a site dedicated to Investing & Passive Income[livingoffdividends.com] and is a gold bug and an avid gold and silver coin collector.

Gold American Eagle
Buy Gold Bullion
Gold Bars
Precious Metals