Investing in Gold
On 21st January 1980, the price of gold was 253$ per ounce. At the beginning of this year gold broke its all time high price of 850$ and the last Friday it touched 900$. Over the past year gold has rallied from 625$ to 900$ which is almost a 44% increase in price. One of the safest and best investments right now is gold. Gold, due to its properties has been used since centuries as money.
Why do I think that the gold price will continue to increase?
It’s better to look at the gold price in terms of the dollar. Consider that you bought an IPOD nano for 150$ today. Since the dollar value is decreasing, the same IPOD will cost you more 2 years from now. If the dollar fell down in value by 10%, then the IPOD is going to cost you 165$. Similarly this long term decrease in the value of the dollar will give you good investment returns in gold. Whenever the dollar goes down, the price of gold will go up.
The US dollar will continue to decrease in value for the following reasons,
1. The insurmountable trade deficit that US has accrued.
2. To avoid recession, the Fed is most likely to decrease the interest rates. Whenever the Fed decreases the interest rate what they are doing is that they are increasing the supply of dollars thereby decreasing its value. Think of it in these terms that you own 100 stocks at a price of 50 each so you have 5000 dollars. Now you split the 100 stocks so you have 200 stocks but the price of each drops to 25 dollars. This is exactly what is happening with the dollar.
3. The dollar will also continue to decrease in value as the Asian economies get stronger.
4. The housing mortgage crisis, the social security woes and in general the steps that the US government has been taking have not done any good to the value of the dollar.
5. Presently international trades are done in dollars. A lot of the oil producing countries have shown interest in moving to some other stable currency like the Euro. Forget countries, even fashion models have now started signing contracts where their remuneration is in Euros. The worst thing that could possibly happen to the dollar is some country abandons the dollar and triggers a chain sequence of events leading to its collapse.
Due to all the above reasons it is important to have your investment in some asset other than dollar and gold is a very good candidate for it. Of all things to invest in, gold is probably one of the most liquid investments. And much unlike many of the other commodities, it is literally traded 24 hours a day everywhere in the world. This means you can buy and sell gold in about any country.
How can you invest in gold?
Gold ETFs
ETS’s stand for Exchange traded funds. It is one of the easiest ways to buy gold. Two examples of ETFs that simply buy, store, and insure physical gold are StreetTracks Gold Shares (GLD) and iShares Comex Gold Trust (IAU). One of the key benefits of investing in gold through an ETF is that you don’t have to worry about safely storing physical gold yourself.
Mining Companies
There are many mutual funds that invest in companies around the world that mine gold and other precious metals. This link contains a list of mining companies that are traded on the national exchange.
Gold Coins
If you want to buy gold coins, I would recommend you to buy American Eagle gold coins. They are official legal tender gold coins in the US and, by law, are produced from gold mined only in the US. The weight, gold content and purity of the coin are all guaranteed by the US Government, which means that investors can buy and own the coins with confidence.
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January 14th, 2008 at 9:22 am
It is a wonder that gold is not much in the news even with such a meteoric price rise in recent years. I suppose this will change once gold hits the 1000$ dollar mark. I do not own any gold stock currently but do have around 10% of my portfolio in silver.
January 14th, 2008 at 10:46 am
Yes I think so it will become popular as the price increases. I have been wondering how silver has been doing in the meanwhile. How have your returns been on silver?
February 1st, 2008 at 12:13 pm
Nitin,
You may want to consider looking into adding gold to your portfolio. It’s just like silver in that it’s normally a pretty safe way to protect your gains in an unstable economy…like ours!
February 7th, 2008 at 4:24 pm
As the price of gold keeps rising and the dollar loses its value, it will definitely show up in the news more often
February 25th, 2008 at 11:47 am
DividenPirate, Silver’s been the best performer in my protfolio- average return has been around 20% since I bought SLV.
February 25th, 2008 at 11:49 am
Eric, yeah I am bullish on gold too, but I do not want to over weight my portfolio with precious metals, so I am holding back on the gold …
March 11th, 2008 at 1:19 pm
Silver and gold have both held up pretty good for me so far. With the price of the dollar spiraling down, we need some alternative (other than banks) for storing away our hard earned profits.
May 2nd, 2008 at 6:55 pm
I am definitely going to be holding onto my gold until the dollar starts heading back up again. Should have made a nice increse by then!