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Investing In Gold

Gold – just the name conjures up images of Egyptian tombs, bank vaults full of ingots, sunken galleons loaded with treasure, and in my case jewelery! For centuries, buying gold has been recognized as one of the best ways to preserve one’s wealth and purchasing power. Gold is a unique investment, one that has served mankind well for thousands of years. From the times of ancient Egyptians, Greeks and Romans to more modern times, man has been fascinated with the beauty and magic of gold, and with its power to change people’s lives. It doesn’t rot, break, crumble or decay, or lose its value with age – it is unaffected by air, water and even most acids. It cannot be debased or over printed like paper money and it is entirely consistent.  In other words one ounce of pure gold, is exactly the same as another. For centuries gold, as the iconic precious metal, has been coveted for its unique qualities of indestructibility, beauty, rarity, and that with ownership comes a tangible exhibition of wealth and importance. Throughout the ages it has provided the medium to act as a universal currency, underpinning banks and governments around the world.

Individuals, on the other hand, have used gold as an alternative store of their wealth and also as an insurance against fluctuations and depreciation in paper assets and money, caused by global instability or government policy. Precious metals remain the ultimate safe haven due primarily to the fact that its value is intrinsic, and it is thus one of the few assets that has no liability or risk from default or repayment. Gold is gold, short and simple. As we have already seen in the supply and demand issues, the mountain simply gets a little larger each year. In May 1999, Alan Greenspan, then chairman of the US Federal Reserve quoted in a speech entitled ‘Gold and Economic Freedom’ that: ” gold still represents the ultimate form of payment in the world … fiat money, in extremis, is accepted by nobody. Gold is always accepted.”

In my view, gold should form part of everyone’s investment portfolio, for the simple reason that to be successful as an investor you need to diversify into a variety of assets, of which gold should undoubtedly be one. Like every other type of asset it will increase and decrease in its value over time, and it should be considered in many ways as an insurance policy. It is certainly a nice way to save for a rainy day with something which is physical and tangible which you can see and touch, but before rushing out to stock up on gold bullion or coins, as with any other form of trading or investing, you need to have a very clear idea of your motivation from the start. Are you a speculator, perhaps only interested in short term gains ( or losses) and making money irrespective of the assets you trade. Are you an investor, looking to hedge against other assets that you own, and perhaps looking over the medium to long term, or finally are you simply a saver, looking to put your money into something for the long term as a hedge against inflation which tends to erode simple savings accounts over time.

The answer to this question will largely dictate the most appropriate form of gold for you to buy, whether physical, paper or electronic. All play a part, but the key is to understand your objectives and to trade or invest in the most appropriate asset class, whether physical or otherwise. As we will see there are a myriad of ways to buy and trade in gold and gold related assets, all of which have different risk and reward profiles.