How and Why to Invest in Gold
After two relatively quiet decades, gold has surged as an item of investor interest. If you’re considering investing in gold, here are a few things you’ll want to keep in mind.
Video: How do you invest in gold now?
Is Investing In Gold Safe?
The most popular investment of all precious metals, gold is often considered by investors to provide a safety net in times of economic or social crisis. Since gold has perennial value, it continually represents a smart investment bet. Consider the term “the gold standard”; this came into play when the United States money supply was backed by gold. Though this is no longer the case, investing in gold is still a smart bet. According to the National Mining Association, gold not only provides insulation against inflation, but it protects investors’ future earnings.
Since gold is considered more desirable in turbulent times of bank failures, low or negative interest rates, and war or other crises, now might well be the time to invest in this precious metal.
Regulations, Cost, and Price Determinations
Specific regulations on gold vary from country to county. In the United States, the Gold Anti-Trust Action Committee has acted as an industry watchdog. Founded in January 1999, GATA states as its mission “advocat(ing) and undertak(ing) litigation against illegal collusion to control the price and supply of gold and related financial securities.”
The London Gold Fixing, which is constituted by a twice-daily phone meeting between five trading firms, is the benchmark for gold pricing. This price is driven by the usual factors of supply and demand, as well as hoarding and disposal. Since there is far more hoarded gold than is produced annually, investor attitudes are more likely to influence gold pricing than simple production figures. The World Gold Council estimates that nearly 2,500 tons of gold has been mined over the past few years.
Better Than Investing In Other Stocks?
If you’re wondering whether it’s better to put your money into gold or in the stock market, consider this statistic: A $10,000 investment in gold bullion in 1999 would have seen an increase to $28,007 by mid-December 2007. That’s an impressive increase of 180 percent. By comparison, a $10,000 investment in the S&P index would have seen an increase to $11,673 over the same time period. That’s a far smaller increase of 16.73 percent.
Since gold is often seen as more stable than the U.S. dollar, in addition to the fact that production is often not enough to meet demand, some investors believe putting their money in gold is preferable to putting it in stocks. As with any other financial move, you’ll have to decide whether this is true in your individual situation.
Video: Three ways to invest in gold
Gold As A Market Player
Though gold is no longer linked to the U.S. dollar, fluctuations in its value are still powerful enough to create ripples not just through the Amercian economy, but rather on a global level. Gold prices will rise along with high oil prices as well as a deflating dollar, both of which cause investors to seek gold’s safer haven. Here you’ll find a chart depicting gold’s performance against other standards, including silver and the U.S. dollar.
Ready to invest? The World Gold Council maintains a database of investment firms where you can buy gold shares. Remember to do your research before putting your money down.