Is Investing In Gold Right For You?Summary: Investing in gold and other precious metals like silver is a great thing for the person starting out on a program of wealth preservation. Gold has had value from the day it was discovered by man and will have value until the day we will end as a race.
However, this does not mean that gold is necessarily 'safe'. It has a price traded on open markets like any other asset. This means that there will always be supply and demand factors, as well as market sentiment and other technical issues that can have an impact on current prices. What Should You Buy?Buying gold doesn’t have to involve a broker, a complex trading system and lots of fees. It can be as simple as buying a gold coin. These days, gold coins can be bought and sold on eBay!The US treasury issues gold coins known as gold eagles. You can buy them directly for the treasury for denomination of $5, $10, $25 and $50. All coins have what is known as numismatic value. This relates to the supply and demand (rarity) of the coin in question. Understandably, it is useful to have an idea of both the factors that will influence the price of gold generally, but also of any additional help that the specificc coin may provide. For this reason, many gold coins sell at prices far in excess of the gold price quoted in the daily paper. In fact, that price relates to the scrap value of gold. Thus, bullion will also often trade at a significant premium to the daily quoted prices. In similar ways, the price of gold bullion can be influenced (but not always) by the mint that created the bar. Some mints create bars with images and pictures on, usually low weight, in the hope of attracting the general public as buyers. When bought as a coin or as a bar, gold is traded by troy ounce . It is worth getting to know the system if you plan to invest because a troy ounce is not the same as an ounce! It is also possible to invest in the companies that mine the gold. These mining firms can offer spectacular returns to investors - if the conditions are right. It is worth pointing out though that gold mining stocks - especially the smaller companies - are generally considered to be either high risk or very high risk! Not for beginners. Many others - including governments, hedge funds, mining companies and many traders - simply trade the price of gold. In this respect it is similar to trading a stock market index. There are buyers and sellers for hedging and trading purposes in massive quantities. As above, this probably isn't for beginners.
Government Holdings Of GoldThe largest owners of gold are central banks - governments. This offers both stability to the market, but also - oddly - instability as well.Governments use gold as a reserve currency , a kind of back-up in case of national emergency. The general theory is that if all else fails and the nation is in terrible financial straits, everyone will accept gold in trade for goods (food or oil for example). Once upon a time, gold used to be the backing for paper currency. It is a separate discussion to this page, but inflation relates to the lowering in value of a currency as more money is printed (that is a verrrry short version!). The fact that a currency is paper based makes it easy to replicate. This was not the case when it was backed by gold. Replicating gold means mining for more... The influence of governments on the price of gold is often visible. Their ability to buy or sell in massive quantities can have a profound impact on prices. Should You Buy?This question can only be answered by you, but gold is normally considered to be an investment for more experienced investors.There are some potential issues to be aware of: - Gold pays no annual dividends - Gold needs safe storage. If it is stolen, it is gone! - The safe storage of gold usually means paying an annual premium for security (a safe deposit box perhaps) - Gold can be quite volatile in price - Gold is very liquid (lots of buyers and sellers) but for smaller quantities it can be difficult to deal with because the gold actually has to be delivered unlike most company stock or other assets - In the past, many governments have outlawed gold holdings in times of financial trouble and then simply confiscated any gold they find
- Gold is not used industrially so almost all the gold ever mined is still in existence - Everyone wants more gold! - There is a huge demand for gold jewellery in India and other countries - In times of trouble, there is a 'flight to safety' which will usually cause an increase in the price - Whatever happens to paper currencies, there will always be a market for gold somewhere If you would like to read more about related topics, please follow these links:
|