Paper currency has only symbolic value, because it is worth only what it can be exchanged for in terms of goods and services. During periods of very high inflation, skyrocketing prices can cause paper currency to lose almost all of its value. As people start questioning the government and the currency system, they look for an investment that provides them with more financial security than paper money.
Gold is that investment. It provides individuals with the safe form of investment they seek because it will never lose its intrinsic value. Situations of economic, social, and political unrest cause other investments to lose value, but they make gold prices rise. If an economic collapse were to occur, the value of gold would increase.
Time and again, history has proven the above statements to be true. The fact that gold is a liquid, tangible asset means that it will always be in demand. Many financial experts now recommend that investors revise their investment portfolios to include at least 10 percent holdings in gold. This will allow them to weather turbulent financial times and a possible economic collapse. If a collapse does happen, the gold they hold can be used to purchase needed goods and services, while those left holding paper money will be out of luck.
Speculation and Gold Trading
Speculation is different from investing and it is definitely more risky, but has its merits in particular situations. Investing involves receiving profit from income generated by assets while they are still owned, such as dividends earned from stock holdings. When speculating, the investor receives a profit from the income generated only after selling the assets.
Of course, speculation is risky. Buying gold for the goal of profit rather than security and as a hedge against inflation can leave you with a loss rather than a gain. I don’t encourage any readers to speculate on gold — just keep a set percentage of your portfolio (10-15%) in gold related investments, and don’t try to flip gold for profits.
That said, for those who are still interested in gold speculation, this is one of the biggest bull markets in the history of mankind. Less gold is getting mined, and more gold is in demand — basic supply and demand says the price of gold will increase dramatically. Let’s look at some facts.
Over the past ten years, gold exploration has dramatically increased, but gold production has declined. This is due to the fact that most of the large ore deposits close to the earth’s surface have been mined. This leaves the ore that is located deeper in the ground, which is more expensive to mine, haul, and process. Another factor is the environmental movement, which does not look kindly upon mining in developed countries. Exploration, development, and mining within developing countries are even more expensive due to the lack of mining infrastructure.
Take this situation in light of the fact that the population is increasing and thus so is the demand for products like gold jewelry. China, a country facing exploding population growth, is now the second largest consumer of gold jewelry in the world, behind India.
Rising gold prices have not deterred the Chinese from purchasing gold jewelry. The United Arab Emirates and Saudi Arabia have also experienced recent drastic increases in gold jewelry demand. Increasing worldwide gold jewelry demand coupled with decreased gold production equates to less risk when it comes to gold speculation because the precious metal faces a decreased risk of devaluation.
But enough about the reasons for purchasing in gold. The purpose of this guide is to allow you to know exactly what the best ways to invest in gold are — this isn’t a theoretical guide, but is for your hands on education.
Next Part: Gold Bullion Coins.