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Pile
of gold bars
about 12.5 kg 400 oz each |
The
precious metal gold as an investment has been a cherished
investing strategy for years. For information and physical
properties, see gold
.
Gold as a store of value
For over two thousand years gold has been regarded as a form
of money and as a store of value. The use of gold superceded
alternatives for a number of reasons including its rarity,
ubiquity, beauty, obvious & unique character (weight,
softness), malleability and resistance to tarnish.
• buy gold coins
• gold investment tips
Since
the collapse of the Gold Standard, gold has largely lost its
role as a form of currency, but is still considered by many,
especially by Central banks, as a store of value, to be used
only as a last resort. Others see gold as nothing more than
an investment to be traded along with other commodities such
as copper or lead, as well as all other forms of investment
such as property, bonds, stock market, hedge funds, private
equity, and deposits.
However, gold does maintain a special position in the market
with many tax regimes allowing gold to be traded as a VAT-free
investment. Silver, and other precious metals and commodities
rarely have the same allowance.
Gold as an investment
Krugerrands
are a popular way to invest in gold because their gold
content is exactly one troy ounce each. |
Modern
day investors in gold may invest in gold for several reasons:
Speculation
The investor believes that he will make a profit from a rapid
change in price. He may believe some future forseen or unforseen
event will affect the demand for gold. He may think he has
detected a pattern in the recent price behaviour which tells
him the direction of the future price.
Insurance
The investor believes that certain events, if they occur,
(e.g. war or crisis), may have a negative influence on the
value of his other investments, but the opposite effect on
the value of his gold.
Asset
Allocation
Traditional asset allocation strategists used to recommend
a 5% to 10% exposure to gold was sensible on the grounds of
diversification. Although the inclusion of gold in portfolios
has largely been abandoned since the 1980s, it is once again
being considered by asset allocators.
Portfolio Hedging
Hoard
of ancient gold coins. |
Similar
to asset allocation strategies, except the purpose of the
investment is to hedge against unforseen calamities which
may affect the price of other investments negatively. Portfolios
which contain gold are better able to withstand market surprises
than those which don't. Recent independant studies have found
that traditional diversifiers, such as bonds, property and
and hedge funds often fail to stand up to market stress and
may sell off with equities in times of uncertainty. Even a
small allocation of gold to a portfolio significantly improves
its performance during unstable periods.
Gold Bulls
Gold bulls, in the traditional sense, believe, fear, or even
hope for Armageddon or the total collapse of the monetary
system, and they hope that by holding gold they will survive
and become rich.
Inflation hedgers
For centuries gold has remained a store of value. It has performed
this function best in times of high inflation. Investors thus
buy gold to protect themselves against a rise in inflation
and a decline in the value of money, particularly paper money,
or fiat money.
Currency Speculators
Since gold is priced in US Dollars, speculators who believe
the dollar will decline, may buy gold. They think that if
the Dollar declines, the gold price will remain constant in
other currencies, thus rising in US Dollar terms. Gold may
also be bought if they feel that a different currency will
decline, since they expect the dollar price to be stable,
but the foreign currency price to rise.
Hoarders
Some investors respect gold as a long term store of value,
and seek no profit, other than to maintain their buying power.
By buying gold and hanging on for the long term, they believe
they can keep their wealth intact.
Physical gold is anonymous. Its ownership is not written down
or recorded anywhere. It is as anonymous as a banknote, but
without the depreciation. Cacheurs seek to hide part of their
wealth from their wives, family, tax authorities, creditors,
extortionists, kidnappers, blackmailers, police, invaders
or others. The anonymous nature of gold allows them to store
a large value in a very small space, without fear of depreciation
or erosion over a long period of time. A tonne of gold would
be equivalent to a cube of side 37.27cm (1 ft 22ž3 in), or
roughly the size of a basketball. This small cube would contain
32,150 troy ounces, and be worth about $15 million.
Online Investing Resources:
• Gold
Investing
• Investment
Club Accounting Software
This
article is licensed under the GNU
Free Documentation License.
It uses material from the Wikipedia
article "Gold as an Investment".
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