Investing In Gold – Knowing The Ins And Out

Why You Should Not “Invest” in Gold
Don’t get me incorrect – I am certainly not against buying gold but as an asset class it is valuable seeing how it behaves differently to other investments such as stocks, bonds or real estate. When you buy a stock in IBM you receive a yearly dividend (hopefully) and (hopefully) the value of the stock goes up over time, the same when you buy real estate as an investment. With Gold it is a small bit different. The reason why gold is seen as a safe haven is that it is a store of value, it never loses its purchasing power. There is an oft quoted adage that an small amount of gold in Roman era would have bought an army detective a fine suit of clothes, that in Shakespeare’s era an small amount of gold would have bought a excellent quality set of clothes and today with gold at just over $1000 this would buy you a excellent Armani Suit. BUT just as over time it does not lose purchasing power it does not increase purchasing power. The real long term nature of gold is as Insurance and not as an investment. As wars are fought, governments collapse, economies tumble public have rushed into gold because they know it is a place where they can preserve the wealth they have.

Yes you can point to gold’s meteoric rise over the last 8 or so years and say what a fantastic “investment” it has been but if you see gold as insurance and mainly buy it as that then you will be able to withstand volatile swings in price that often occur in the gold market, you will be less worried about day to day events in price and you will perhaps see that the price of gold did not go up just the value paper cash in your wallet went down.

Gold Will Protect Me From Coming Super or Hyperinflation – Or Possibly Not
Many gold commentators talk about excessive cash printing by central banks, how it will inevitably lead to sky high inflation even hyperinflation and how gold will protect you. Well yes and no. Gold is not such a immediate hedge against inflation that everybody thinks as much as it a hedge against political risk. When Gold skyrocketed to $850 in 1980 it was not a reaction to high prices so much as to the uncertainty surrounding the prospect of the dollar. In the following years inflation still persisted but the gold price plummeted. Gold is a hedge against inflation really in the long term because in the long term it retains its purchasing power but will it rise 10% just because inflation rose 10% – history is unclear on that.

There is A High Risk of a Worldwide Currency Collapse – So Gold is the Only Safe Haven????

It is February 2010 and Greece is on the brink of bankruptcy with Portugal, Italy, Ireland and Spain all waiting in line to follow suit, if these countries go down then they will take many others with them. Countries like Germany will also be drastically effected because they lent the cash, kept part of the debt and then sold the rest on to Insurance companies and Pension Funds along with insurance called Confidence Derivatives. States in the USA like California and Illinois are in worse shape than Greece. The whole worldwide financial system is massively tangled through a intricate system of derivatives, there was massive over borrowing and a name will have to pay the piper. There is therefore a certain inevitability about a full on currency crisis making gold ever more attractive because it is no one’s liability it cannot be printed ad infinitum. But much they try governments cannot corrupt it.

But inevitable a currency crisis or collapse may seem to you, for there to really be one the majority of the market or at least the huge players in that market have to agree with you. While the fundamentals are in place it can take a long time for the mass to catch on to those fundamentals. You may not be fooled by bailouts and government posturing but in the small term many public are. So for you to be proved right may take many years with lots of twists and turns.

What we face at the moment is a huge confidence collapse never seen on such a magnitude before so who knows how it will play out. If you remember back to 2008 this particular crash caused the gold price to collapse and the dollar to strengthen -so in the small to standard term this could happen again. Once again if you see gold as insurance – the small to standard term does not matter so much.

Gold as Protection during a Financial Crisis
If gold is your only hedge against financial crisis then this could be before a live audience with fire a small. Reckon that there are many scenarios where having gold will not help because no one has any use for it, no one wants to exchange their bag of wheat for your small amount of gold because well you cant really eat it. Gold is a fantastic store of value but it is not the only one. Food, basic clothes, seeds, – essentials that public always need are also fantastic stores of value with a much wider market so if you are motivated towards buying gold because you envision financial catastrophe then it may pay to have a excellent reckon about other stores of value. The fantastic thing is about having a generous store of food and essentials is that regardless what happens YOU will always need then. So it is never cash down the drain!!!!

Bartering with Gold Could Verify Very Expensive
If you are investing in gold because you envision you may be bartering with it some day – well reckon on. I’m sure a name will swap a loaf for an small amount of gold but that will be a mighty expensive loaf!!!! Look at having precious metals in smaller denominations – junk silver coins – ancient US coins that have silver in them are a fantastic alternative. They are simple to buy from any coin store and are very low denomination (a silver dime has less than$2 worth of silver in it )

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