Cash may be king and stocks may rise and fall, but gold has been around longer than both. As markets fluctuate, many people wonder where to find safe investments. There are several good reasons why gold might be the answer.
- The Gold Standard
Until 1971, gold was the international standard of currency. This meant that governments could convert their dollars into gold at 35 dollars per ounce. This meant that every dollar had a fixed amount of gold promising its worth. Since President Richard Nixon closed the gold window, the world has used a "fiat money system" in which the dollar is intrinsically worthless. (See Reference 1) Gold since has gone from 35 dollars per ounce to $1,228.80 per ounce as of March 14, 2010. (See Reference 5)
- A Finite Resource
Gold is traded openly on the commodities market and like some other commodities is a finite resource. This means that unlike rice or pork bellies (also traded on the commodities market) there is only so much gold on the planet available for trade. Gold is made even rarer when you consider how much of it is locked up in jewelry, electronics, private stock and in as-yet unmined ores.
- Devaluing Currency
Most people retain their money in dollars or investments in companies (which are investments measured in dollars). As governments find themselves in debt, dollars depreciate in worth. Gold is left unaffected or even positively affected by increased governmental debt.
- Universally Recognized
Dollars are accepted in most parts of the world, but not at equal value to other currencies. The internationally recognized price of gold means that gold is worth the same virtually anywhere, which can come in handy when traveling in a richer country.
- Security
Gold is still one of the most highly sought-after precious metals. This means that even in the event of catastrophic government or industrial failure--even as other metals like tungsten and titanium fluctuate--gold is likely to retain its value.
- Value
Although gold is one of the most expensive commodities on the market, it also has been that way for a long time. In fact, gold has not returned to its "gold standard" value since the gold standard was ended.
- Perception
According to eGold.com: "Gold has psychological appeal. Not only is the price of gold affected by supply and demand; it's almost as importantly affected by public perception." This means that the price of gold is likely to increase simply because it is gold. (See Reference 2)
- Collateral
If you are looking to finance a home or other large investment, a gold investment in your portfolio means you have collateral the financiers can count on.
- Large Increases
Unlike other commodities, which have either fluctuated rapidly or stayed largely unchanged in recent years, gold has risen steadily by an average of 17 percent since 2004. (See Reference 2)
- Now is the Time
Perhaps the best reason to invest in gold now is that now may be cheaper than later. Gold prices may hit $3,700 per ounce by 2016, according to analysts at Citigroup
