Gold investing is a topsy-turvy microcosm within the financial markets. Some of the most fervent proponents of gold investing have been humored through the years until the last decade or so. During the gold rush that began around 2001 and accelerated right up until the high point for gold values was reached in 2011, many people became alarmed about their message.
For some people, the response to this alarm was to buy into gold heavily. Others ridiculed gold investing and called it a bubble. The funny thing about the division between these sides is that both sides still think they are right.
Gold values hit an all-time high in 2011 when they surpassed $1,900 per ounce. There was a lot of excitement at the time. Some proponents of gold investing were talking about gold prices of $2,500 or even $3,000 at the time. Others were exclaiming that the bubble was about to pop and warning their friends to stay out of this precious metal.
Since that time, gold values have fallen back to less than $1,300. Those who decried the mass movement into gold feel vindicated because many latecomers to the precious metal markets have lost their shirts. At the same time, those who got into gold when it was worth just $700 or $800 a handful of years ago still think that they have done well.
Furthermore, even many believers in gold who have lost money in the last two years remain confident. In their opinion, the long-term value of gold can only go up as long as governments keep running such huge debts and pumping essentially fake money into the global economy.
With all the excitement, it is only natural that those who are still on the fence about gold feel like they need more information. They need to know basic information about gold, some history and some details about how people invest in this precious metal.
What Is Gold?
Gold is a precious metal. Other members of this metal family include examples such as silver, platinum and palladium. However, gold is really the poster child for precious metals. It probably has the longest history among all cultures. People continue to find important ways to use it for industrial and commercial purposes that go far beyond jewelry and shiny coins.
Gold was discovered before history was even recorded. The earliest records mention it as something already known to be valuable among ancient people. However, it is not just the luster of gold that made it so important to human ancestors. Gold is a dense yet soft metal that is unlike iron or lead. You can pound it into shapes without lighting a fire. This means that primitive people did not need forges or any higher-level technology than a hammer to shape it.
And shape it they did. Gold was used to adorn the horns of animals, weapons of war and even make jewelry for men and women. Since gold was also rare in comparison to other metals and minerals, it was a possession only of the elite. Owning and displaying gold showed that you were a member of the highest class among your society.
Eventually, gold became the basis for currencies among most cultures. This was not just a stage in currency. Gold remained the basis for currencies right up until the 20th century, when many nations abandoned their gold standards and began to rely on less concrete methods of determining the value of their money supply.
In the last few centuries, people have also discovered other uses for gold that have nothing to do with money, art, religion or jewelry. Gold’ softness is also known as malleability. This malleability allows people to make various shapes with gold that maintain a certain physical integrity.
Gold is also an excellent conductor of electricity and very resistant to corrosion. It is the perfect component to use in delicate machinery, such as that inside a computer or smart phone. Experts estimate that every cell phone has somewhere between 50 cents’ and a full dollar’s worth of gold inside it. Given the ubiquity of these devices today, the demand for gold remains high at all times.
Why Invest in Gold?
There are many reasons people buy gold. It is admired as the best underlying material for jewelry. It is also needed by many industrial concerns to fashion their products. However, the real power of gold as an investment comes from its usefulness as a hedge against inflation.
One of the curious things about gold as a commodity is that it does not get consumed immediately like many others. When you buy a shipment of wheat to make a profit from rising prices, you essentially have one short period in which to make that money before you sell the wheat to consumers in one way or another. The same goes for metals such as aluminum or iron. After they are mined and refined, they are generally sent off to be used in manufacturing.
With gold, however, you have a commodity which is not consumed immediately. Some is sent off to be turned into electronic connections for smart phones and laptops. Most of it, however, ends up in vaults and reserves around the world. There it sits and gathers value as currencies inevitably inflate.
This is particularly true with regard to the US dollar. Gold prices are generally expressed in terms of the dollar. Since the amount of gold in the world remains relatively stable but the number of dollars continues increasing by leaps and bounds every year thanks to quantitative easing, it is only natural that each ounce of gold increases in value. Many people trust in gold because of this reason. Though it may suffer setbacks like any other investment asset, in the long term it is bound to be a winner.
How to Invest in Gold
If you are a short-term investor, then this may seem like cold comfort for you. However, a quick look at gold price fluctuations should quell your concerns. This is an excellent asset for technical trading because you can make money all day long trading it even if it ends up lower at the end of the day. You may want to invest in gold stocks or gold funds in order to avoid getting caught up in the details of maintaining and storing physical gold.
For the long-term, many experts recommend buying physical gold in the form of bars and coins. They prefer these assets because you retain control over their location and have immediate access to them.
Physical Gold Investing
If you are interested in buying physical quantities of gold, then you have a choice between bars and coins. Some investors prefer coins because they are worth more than simple bars due to their designs. However, these coins require maintenance in order to preserve their value. That is why other investors prefer gold bars, whose only value is determined by their mass and not by their appearance.
Gold Assets
Assets in this class include gold coins minted by various nations. The American Gold Eagle is a popular purchase in the precious metals market. Interestingly, these coins are among the least pure for sale today but they maintain their integrity better due to the mixture of silver and copper in the alloy. Investors that want a purer form of gold in their coin would be encouraged to try the Chinese Gold Panda or the Canadian Gold Maple Leaf. The latter is the purest gold coin available in the world.
Many companies around the world issue gold bars. These bars come in varying sizes that range from as small as one gram to as large as several kilograms. The most common version of a gold bar is probably the one-ounce size that many companies sell. These are easy to liquidate. If you have a lot of money to invest, you might be interested in the classic two-kilogram bar that you see in movies.
Other Forms of Gold Investing
Some people prefer to avoid these physical assets because they do not want to detract from their profits with maintenance costs that involve shipping and storage. Instead, they may invest in stocks from gold mining companies. These assets allow them to use skills earned while investing in other publicly traded companies to determine the value of their assets. Also, companies can make profits and be successful even when gold values fall.
Others take advantage of the new exchange-traded funds (ETFs). These funds track index funds that contain gold stocks and even real gold deposits. Yet, even though they represent investment in physical gold, you can buy and sell them just like they were stocks. You get all the security and performance of gold without the hassle of maintenance.
For more information about the situation with gold right now, take a look at Monex gold prices. This website can give you up-to-date information about gold investing and keep you on top of the latest developments in the precious metals markets.