There are two opposing opinions when it comes to buying gold. Some people consider it an investment and use it as any other asset.
They try to generate a return by buying it for a certain price and selling it for more than they paid. Others would argue that using gold as any other currency defeats the purpose of buying gold and that is to create an insurance against the very real possibility of currencies crashing and losing value.
Gold should be thought of in the terms of saving and preserving wealth despite the fluctuations in currencies. Currencies are volatile in nature, they can be created and destroyed and their value is determined by the market forces that are demand and subsequent supply.
On the other hand, prices of gold may vary, but its value will never diminish.
People have been using gold as a means to determine value and accumulate wealth as early as 5000 BCE. Ancient Egyptians and Sumerians used to make jewelry out of electrum, a naturally occurring alloy that contains both gold and silver.
The first gold chains were produced in Ur, a prominent Sumerian city-state of ancient Mesopotamia. Even today, rich European aristocrats and Middle Eastern sheiks and oil barons accumulate, preserve and transfer their wealth through generations using gold as a de facto measure of saving.
Using it as a simple asset denies it its intrinsic value of protecting people against a potentially fatal collapse of currencies worldwide.
It’s not the question of if our current monetary arrangement will experience a systematic failure, but rather a question of when. And once it happens, having gold safely stored away turns becomes a life-saver.
Not only do you have something of value you can trade with, but all your wealth is left virtually intact despite the failing economy.
What are the ways of buying gold?
Individuals can purchase gold in a number of different ways. Those who prefer to physically own it can buy gold in the form of gold bullions and gold coins. This is called direct ownership and one of the more popular current forms of ownership is buying minted coins, such as the American Eagle, Canadian Maple Leaf or the South African Krugerrand.
Other methods that don’t involve having any physical contact with gold include mutual funds and a very specific type of mutual funds called exchange-traded funds or ETFs for short.
A standard mutual fund holds a number of portfolios with stocks of different gold-mining companies. These are already fully established and respectable mines that are able to produce gold on a regular basis.
Exchange-traded funds, however, represent a subset of mutual funds that hold a single fixed portfolio. This portfolio does not change and is usually handled as any other stock.
Why should you invest in gold?
Investing in gold as a means of preserving wealth is something we often see when dealing with crashing markets. As currencies lose value, you need more money to afford even the simplest of commodities.
Couple a currency with a declining value with the increase in prices and you get inflation and gold is used as a sort of a hedge against these types of economic situations. This is why the price of gold rises despite the declining value of U.S. dollar.
Advantages of Saving in Gold
Even though gold is not a primary form of currency today, it remains a very popular investment. The reasons for that are somewhat obvious, because of its value, but let’s take a closer look at them.
First of all, the gold holds great liquidity. Gold can easily be converted into cash and you can do it anywhere in the world.
Second, it holds its value. The value of gold almost never changes and it has managed to preserve its value over some greater periods of time. Even when the price decreases, the overall value of gold doesn’t change that much.
Third, the value of gold rises when inflation hits. Since it is priced in US dollars, when the dollar deteriorates, the value of the gold rises, logically. Thus, savings in gold prove to be a much safer investment than those in US dollars, for example.
Then, gold means diversification. If your portfolio has different securities you are lowering the overall risks of your investments. Also, since gold can move inversely to the stock market and the value of currencies, it provides an effective way of diversification of your investments.
Lastly, gold is used in various products, which further stabilizes its price. Many different products, including jewelry and electronics have an input in gold and when the demand for it increases the price of gold will get higher.
Gold is more than a simple asset you can use to generate a profit. Its true purpose lies in safeguarding your wealth and reducing the risk of losing everything due to stock-market crashes and currencies losing their value.
It doesn’t matter what type of portfolio you have, what is your background as an investor or what the current value of money, you can always preserve your wealth by owning gold.
If you’re looking for a means to generate a profit, instead of buying gold, you might want to consider trying out your luck with trading stocks. Or if you have an appetite for high risk find how to make money trading crypto-currencies like bitcoin.