Published on 12-20-2010 06:51 AM
In these uncertain financial times, investing in gold has been a very popular topic of discussion. Does gold really offer a safe haven for your money? Does it make sense for your portfolio? What is the risk? The prudent investor should learn all he can before committing to an investment in gold.
Lately, "Gold Bugs" have been creeping out of the woodwork, appearing on tv commercials and urging you to invest in gold. Perhaps you have received an impressive mailing from a company that sells gold. Warnings to act now and buy gold and don't hesitate because you might miss the big move are standard fare. Maybe what they say is true. Maybe they are simply opportunists, hoping to get you to part with some of your hard earned money.
What should the average investor do? Well gold, like any other investment has its good and bad points. It is up to the individual to learn as much as he can before deciding whether or not to invest.
Investments of any type are not black and white. What might be a good investment for your neighbor may not be right for you. In general you must ask yourself about your tolerance for risk, your investment time horizon and the return you are seeking. So with that in mind, let's consider both the positive and negative points about investing in gold.
Why Should You Invest In Gold?
. Gold is ready for a major run toward $2,000 an ounce.
. Today's Economic Conditions make it an ideal time to accumulate gold.
. World Turmoil makes gold a good investment
. A Hedge against inflation
. A weak dollar is positive for gold
According to the bullish gold experts, gold is ready to make a major run toward $2,000 an ounce. Having gone up more than $200 in the last year or so, there is widespread belief that it will continue to rise at a steady pace. Technicians will point to their charts and espouse all the indicators that lead to a perfect upward path toward $2,000. Fundamental analysis is also quite convincing. China and India have been major buyers of the commodity. With the increasing wealth of these countries, all indications point to a continued interest in gold. In the United States, each year, the US Mint produces a certain amount of gold coins for investors and collectors. The number of coins produced is based on an estimate of the demand for these coins. In 2009, the American Eagle one ounce gold coin quickly sold out. If you want a 2010 gold coin, you better hurry or you'll be out of luck. The limited supply has caused a rise in price for the retail purchase of gold. Because there is a demonstrated increase in demand and the supply has not kept up, it is inevitable that the price must trend up.
The basic economic law of supply and demand will push the price of gold higher for years to come.
Today's Economic Conditions have created a perfect environment for the price of gold to appreciate. The crisis in the banking industry is far from over. Goldman Sachs is under government investigation. Foreclosures are still happening at a far too high rate. Unemployment is still hovering around 10%. The everyday man or woman has not stopped worrying about the safety of their investments in the stock market. As the level of fear and anxiety continues to infect so many investors, gold seems like a reasonably safe alternative. People who were burned by the collapse in the market are not willing to be burned again. It is this change in attitude that will bring a whole new group of investors into the gold market.
World Events are always a consideration when investing. The more disruption and uncertainty there is in the world, the less the stock market likes it. Gold is the beneficiary of troubled times as investors seek the comfort of a fixed asset that has historically held up very well under duress. With the United States fighting wars in Iraq and Afghanistan, there is little wonder that markets are affected. How long will we remain fighting? What are the political ramifications of the eventual outcome of these wars? Terrorist attacks are a too real possibility. We can never be certain we won't be attacked. An attack on our power grid could have devastating economic consequences. Dealing with many other major problems in the world can be troubling. Energy supply might be threatened. World hunger, shortage of water and poor healthcare have led to unrest. Can we manage all of these crisis situations or will they ultimately lead to a less viable world economy? Gold is king when the world is out of control.
Today, Inflation is hardly a problem. Interest rates are near zero and prices have risen only modestly. But, this environment will not last forever. The incredible amount of our national debt will inevitably lead to inflation. The immense amount of government spending on bailouts and other programs designed to stimulate the economy, has to eventually be paid back. As debts come due, dollars will be printed and inflation will result. How soon and how severe prices will rise is still to be determined. This economic cycle is certain. Gold will benefit greatly as a hedge against inflation.
The Weak Dollar, a result of economic policy, has a great effect on the price of gold. The Federal Reserve and Mr. Bernanke have chosen a path for our economic recovery that encouraged a weak dollar. Aside from the ever-expanding trade deficit, the debt load and several other factors have caused the dollar to plummet against many of the world's currencies. I remember a few years back when the Canadian tourists would come down to Hollywood, FL and try to pay for their purchases with Canadian Dollars. Most Merchants would not accept Canadian money because it was only worth about .80 to the US Dollar. It is disappointing to now find the US Dollar being worth less than the Canadian Dollar. Well, as disappointing as it is to see the weakness of US currency, gold benefits from this weakness. Holding gold is a good strategy in the world economy when the dollar is weak.
Why Should You Not Invest In Gold?
. Opportunity Cost
. Storage problems of taking possession of physical product
. Belief that gold prices have peaked and are heading down.
Owning Gold means that the dollars you spent buying gold can not be applied to other investments. While stocks can run up rapidly, gold tends to climb in a more deliberate manner. It may take a year or more for gold to appreciate 10%, while a hot stock can easily make you 50% or more on your investment. If you are very active in the stock market, you may find yourself "cashing in" your gold coins that have not moved in months for a position in a can't miss stock.
Storage Problems when taking possession of physical gold can be a reason why you would not want to invest in gold. While this problem can be solved by having the institution where you buy your gold actually keep possession in their vault, many people want to be able to touch their gold. People who believe that doomsday is coming inherently have a distrust of institutions and would wonder if their gold was safe. As irrational as it seems, many investors will hoard a substantial collection of gold coins in their dresser drawer, making them targets for a costly robbery.
Certainly, the best reason for not owning gold is if you believe that the price has peaked and the trend will be downward. In what can be described as a somewhat bullish gold market, there are still many contrarian investors who believe gold is not a good investment. They too have charts to read and can come up with a number of scenarios as to why gold will go down before it goes up. Basically, they are more optimistic about the world and the economic recovery. The wars in Afghanistan and Iraq will end soon and very positively for America. Osama Bin Laden and other terrorists are not a big threat to our country. The dollar will strengthen. Inflation will remain in check and the world will come together in peace and harmony. Of course this is a bit of an exaggeration, but, the point is, some people don't think the world is coming to an end.
I would suggest that gold is a good investment as part of a well balanced portfolio. No one really can predict the future, so it is a good idea to have your money spread over a wide area of investments. Don't put more than about 10% of your total investable dollars in gold. You will give yourself a chance to make a nice profit if gold rises as some predict and at the same time, you won't be destroyed if gold prices move lower. Over time, I believe gold to be a good investment. If you can't buy gold and wait a year, two years or even five years for it to move higher, stay away. Otherwise investing in gold is a good idea.
Lately, "Gold Bugs" have been creeping out of the woodwork, appearing on tv commercials and urging you to invest in gold. Perhaps you have received an impressive mailing from a company that sells gold. Warnings to act now and buy gold and don't hesitate because you might miss the big move are standard fare. Maybe what they say is true. Maybe they are simply opportunists, hoping to get you to part with some of your hard earned money.
What should the average investor do? Well gold, like any other investment has its good and bad points. It is up to the individual to learn as much as he can before deciding whether or not to invest.
Investments of any type are not black and white. What might be a good investment for your neighbor may not be right for you. In general you must ask yourself about your tolerance for risk, your investment time horizon and the return you are seeking. So with that in mind, let's consider both the positive and negative points about investing in gold.
Why Should You Invest In Gold?
. Gold is ready for a major run toward $2,000 an ounce.
. Today's Economic Conditions make it an ideal time to accumulate gold.
. World Turmoil makes gold a good investment
. A Hedge against inflation
. A weak dollar is positive for gold
According to the bullish gold experts, gold is ready to make a major run toward $2,000 an ounce. Having gone up more than $200 in the last year or so, there is widespread belief that it will continue to rise at a steady pace. Technicians will point to their charts and espouse all the indicators that lead to a perfect upward path toward $2,000. Fundamental analysis is also quite convincing. China and India have been major buyers of the commodity. With the increasing wealth of these countries, all indications point to a continued interest in gold. In the United States, each year, the US Mint produces a certain amount of gold coins for investors and collectors. The number of coins produced is based on an estimate of the demand for these coins. In 2009, the American Eagle one ounce gold coin quickly sold out. If you want a 2010 gold coin, you better hurry or you'll be out of luck. The limited supply has caused a rise in price for the retail purchase of gold. Because there is a demonstrated increase in demand and the supply has not kept up, it is inevitable that the price must trend up.
The basic economic law of supply and demand will push the price of gold higher for years to come.
Today's Economic Conditions have created a perfect environment for the price of gold to appreciate. The crisis in the banking industry is far from over. Goldman Sachs is under government investigation. Foreclosures are still happening at a far too high rate. Unemployment is still hovering around 10%. The everyday man or woman has not stopped worrying about the safety of their investments in the stock market. As the level of fear and anxiety continues to infect so many investors, gold seems like a reasonably safe alternative. People who were burned by the collapse in the market are not willing to be burned again. It is this change in attitude that will bring a whole new group of investors into the gold market.
World Events are always a consideration when investing. The more disruption and uncertainty there is in the world, the less the stock market likes it. Gold is the beneficiary of troubled times as investors seek the comfort of a fixed asset that has historically held up very well under duress. With the United States fighting wars in Iraq and Afghanistan, there is little wonder that markets are affected. How long will we remain fighting? What are the political ramifications of the eventual outcome of these wars? Terrorist attacks are a too real possibility. We can never be certain we won't be attacked. An attack on our power grid could have devastating economic consequences. Dealing with many other major problems in the world can be troubling. Energy supply might be threatened. World hunger, shortage of water and poor healthcare have led to unrest. Can we manage all of these crisis situations or will they ultimately lead to a less viable world economy? Gold is king when the world is out of control.
Today, Inflation is hardly a problem. Interest rates are near zero and prices have risen only modestly. But, this environment will not last forever. The incredible amount of our national debt will inevitably lead to inflation. The immense amount of government spending on bailouts and other programs designed to stimulate the economy, has to eventually be paid back. As debts come due, dollars will be printed and inflation will result. How soon and how severe prices will rise is still to be determined. This economic cycle is certain. Gold will benefit greatly as a hedge against inflation.
The Weak Dollar, a result of economic policy, has a great effect on the price of gold. The Federal Reserve and Mr. Bernanke have chosen a path for our economic recovery that encouraged a weak dollar. Aside from the ever-expanding trade deficit, the debt load and several other factors have caused the dollar to plummet against many of the world's currencies. I remember a few years back when the Canadian tourists would come down to Hollywood, FL and try to pay for their purchases with Canadian Dollars. Most Merchants would not accept Canadian money because it was only worth about .80 to the US Dollar. It is disappointing to now find the US Dollar being worth less than the Canadian Dollar. Well, as disappointing as it is to see the weakness of US currency, gold benefits from this weakness. Holding gold is a good strategy in the world economy when the dollar is weak.
Why Should You Not Invest In Gold?
. Opportunity Cost
. Storage problems of taking possession of physical product
. Belief that gold prices have peaked and are heading down.
Owning Gold means that the dollars you spent buying gold can not be applied to other investments. While stocks can run up rapidly, gold tends to climb in a more deliberate manner. It may take a year or more for gold to appreciate 10%, while a hot stock can easily make you 50% or more on your investment. If you are very active in the stock market, you may find yourself "cashing in" your gold coins that have not moved in months for a position in a can't miss stock.
Storage Problems when taking possession of physical gold can be a reason why you would not want to invest in gold. While this problem can be solved by having the institution where you buy your gold actually keep possession in their vault, many people want to be able to touch their gold. People who believe that doomsday is coming inherently have a distrust of institutions and would wonder if their gold was safe. As irrational as it seems, many investors will hoard a substantial collection of gold coins in their dresser drawer, making them targets for a costly robbery.
Certainly, the best reason for not owning gold is if you believe that the price has peaked and the trend will be downward. In what can be described as a somewhat bullish gold market, there are still many contrarian investors who believe gold is not a good investment. They too have charts to read and can come up with a number of scenarios as to why gold will go down before it goes up. Basically, they are more optimistic about the world and the economic recovery. The wars in Afghanistan and Iraq will end soon and very positively for America. Osama Bin Laden and other terrorists are not a big threat to our country. The dollar will strengthen. Inflation will remain in check and the world will come together in peace and harmony. Of course this is a bit of an exaggeration, but, the point is, some people don't think the world is coming to an end.
I would suggest that gold is a good investment as part of a well balanced portfolio. No one really can predict the future, so it is a good idea to have your money spread over a wide area of investments. Don't put more than about 10% of your total investable dollars in gold. You will give yourself a chance to make a nice profit if gold rises as some predict and at the same time, you won't be destroyed if gold prices move lower. Over time, I believe gold to be a good investment. If you can't buy gold and wait a year, two years or even five years for it to move higher, stay away. Otherwise investing in gold is a good idea.
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