Gold has a long history of use as a primary form of currency in many nations. And although it is no longer used as currency anymore, many people still considers it as a form of wealth insurance. Other people look to gold as an investment.
For more information on gold investing, including its advantages, disadvantages, and the extent to which one should invest in the yellow metal, check out the following overview:
Advantages of Gold Investing
Despite the fact that gold is not used as the primary form of currency, many people around the world still invest in the yellow metal for the following reasons:
- Liquidity: You can easily convert your gold to paper money in any part of the world. The universal acceptance of gold is unparalleled when compared to any other metal or even currency.
- Store of value: When it comes to maintaining its purchasing power over long periods of time, gold is unrivaled.
- Stability: Fiat currencies come and go, but gold is eternal; it has been used and recognized as money for more than 5000 years. As such, it is a valuable asset to own in nations with unstable currencies. For example, if gold is priced in, say, Indian rupees, then any deterioration in the value of the rupee is reflected in a higher rupee price of gold. In other words, gold acts as a safe haven during periods of high inflation.
- Diversification: Gold can be used to diversify an investment portfolio beyond the typical mix of stocks, bonds and cash. As an added bonus, gold acts as insurance against currency failure, further hedging your other investments.
Disadvantages of Gold Investing
While many people like to invest in gold, there are some disadvantages:
- Lack of passive income: Unlike stocks, bonds, and mutual funds that offer passive investment opportunities by providing dividends or interest payments, gold only offers a potential return if you sell it — assuming its value at the time of sale is higher than the original purchase price.
- Holding costs: Purchasing gold comes with storage and protection costs that stocks and bonds don’t have.
- Questionable returns: Some economists believe that the value of gold increases only when the currency is devalued, or when there is a substantial inflation in the country. As such, they say that investing in gold does not offer adequate or fair returns to gold investors.
However, gold’s disadvantages — perceived or otherwise — don’t mean that the yellow metal is unworthy of being considered a legitimate investment option. In fact, since gold is a proven safe haven investment, investing a small portion of your salary can never be seen as a reckless move whether you live in the United States or places like India. With that in mind, the 22 carat gold rate today is in the neighborhood of $1409 per troy ounce (or 30,200 rupees per ten grams in India).
Many experts suggest investing 10% of your income in gold; this is even more important for those who live in a country with an unstable currency, or an economy plagued by high inflation. Of course, it’s important to not get carried away — keep your gold portfolio allocation to a modest level and never put all of your investment eggs in one basket.
Photo Credit: King World News
“Gold is money, everything else is credit” JP Morgan.
Amen, Andy.
My view of gold and silver are not investments as such, but as savings accounts that don’t depreciate over time. While they pay no interest, the do (generally) have the ability to retain purchasing power, which is what I want for my ‘money of last resort’.
When folks talk about investments, they often forget to factor that loss of purchasing power, as well as increased taxes, into the eventual outcome. Once you factor that in, the return for the amount of risk may not look so good.
Take a silver dime, for example. When I started driving in the early 60’s, gasoline was 30 cents/gal…..3 silver dimes. Today, the ‘melt value’ (just the value of the silver in them) is $1.19 (source: Coinflation.com)…..so 3 pre-1965 times, which are 90% silver, has the purchasing power of $3.57 in today’s funny money. I filled up the other day, gasoline was $2.69/gal here. So those 3 dimes have retained their purchasing power (plus a little) in terms of gasoline for 60 years. Electronics, maybe it hasn’t kept pace….our first microwave oven was around $900…..today, you can get a better one for 200….but I buy gasoline and food a lot more than I buy electronic devices…..ahahhahaaa.