Home | Investing | Commodities

Why You Should Buy Gold?

The financial media, and even the network TV shows, have started reporting the price of gold regularly. For almost 20 years, between 1980 and 2000, the bullion price was never mentioned. There was almost no interest, and the price was either falling or stagnant. Since 2001 however, interest in gold has soared along with its price. With the price well over $1000 an ounce, many 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 bullion prices from $250 per ounce in 2001 to over $1000 today has drawn investors and speculators into the gold market. Though many already have made obscene 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 grow as proper investments should. It’s more precise 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 an important role in determining the quality of the investment and the profits made.

Buying gold and holding it is somewhat similar 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 big difference between the two however, since by holding paper money one usually faces a loss of purchasing power. The purchasing power of commodity money, i.e. gold, however, increases if the government devalues the circulating fiat money. Buying gold is hedge or insurance against government’s tendency to debase its currency. The buying power of gold goes up not because it’s a so-called good investment; it goes up in value only because the paper currency decreases in value. In our current situation, that means the U.S. dollar is weakening 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 severe 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 more attractive than trying to save wealth in the form of a fiat currency, even when getting 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 when 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 good idea for you to diversify a portion of of your savings into gold or even gold-backed securities like the Gold ETF. Some financial planners advise that people hold 5-15% of their cash in gold, although with the current market situation, I'd absolutely aim for the top of that range. I especially like collectible 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. That's why I prefer old and rare gold coins, which don't really have a high premium right now. My favorites are the Napoleon Era Gold Coins

Article Source: http://www.noviceinvesting.com/Article

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