Why should you invest in gold?

Posted on May 10, 2011 by Jerry Jose Gold is there even from the ancient period where there was no any other known metal. Gold is the first metal introduced to mankind. The color and value of gold attracted not only the ordinary people but kings and emperors also. Soon gold became an unavoidable luxury for all mankind. The Scriptures and Mythologies prove the importance of gold among generation to generation. Gold was associated with gods, immortality, and wealth and with every happy event of human beings like marriage etc. Earlier gold was used for making ornaments and afterwards it was used to make plates, utensils, coins and even the crowns of kings. Idols are also made with gold. In all nations people and government are holding gold for various reasons:Historical value of gold- Gold has its own value in history and as stated above gold is the first metal introduced to mankind. Iron and Copper had given the greatest contribution to technological development and Economical Growth of all over the world. But gold has a shining historical value and also has a physical value. People pass their wealth from one generation to next generation in the form of gold. Earlier, rich people used to bury their gold in the form of coins in pots to save it from robbers and thieves. In The Bible we can read about gold from the first book itself (The Book of Genesis) which narrates the history of mankind from the beginning itself. All historical books, mythologies and studies reveal the importance of gold to generation and it has its own historical value. So people wish to keep gold which has a physical value as well as historical value. Gold as a reserve for currencies- A certain percentage of gold is kept as security (reserve) for all paper currencies issued by almost all countries. Gold has its own value and the value shows only increasing tendency in history. So gold is taking the main part as reserve for currencies of many countries. Gold as a hedge against inflation- When we check the value chart of gold we can see that the value of gold never seriously goes down in history. All times it tends to increase as per the increasing standard of living of people. We can see that the value of shares, stocks, real estate and other financial products come down, but the value of gold never came down. It goes up steadily. So if you include gold also in your investment portfolio you can keep as a cushion against inflation. Saving you from Deflation- The prices and business activities may slow down when the deflation come into force. You may remember the recent recession which was affected almost all nations. But in the Great Depression of 1930s which was affected globally the price of all commodities came down sharply, but the price of gold affected only a slight fall.

Political insecurity- During political insecurity also the price of gold may not be affected adversely. When political insecurity happens people may migrate to other places or nations and such a time the value of financial products and real estate will come down sharply, but the value of gold never shows such an adverse result. The easiness of handling gold may help it to sustain its value even during the uncertainties. Low Supply of Gold- You may be aware that when the supply of a commodity decreases the price of such commodity will increase. Here the supply of gold is decreasing year after year and the demand of gold is increasing. So normally the value of such commodity increases. If it is any agricultural commodities, the problem of supply may be seasonal, but in case of gold it is a natural resources and should be extracted from mines and the availability of gold from such mines are always decreasing and the chances of discovering new gold mines also very less. In such a condition we could not expect a sudden decrease in the value of gold. Increasing consumption of gold- Many counties gold is related with their culture and most of the occasions gold is an unavoidable commodity. India is also one of the largest gold consuming countries. In India the main use of gold is for ornaments and jewelry, the wedding seasons increases the value of gold in India. Gold bars and gold bullions are used for investment purpose. In India Akshaya Tritiya- The third day (Tritiya) of Vaishaka month (in a traditional calendar in India) which occurs late April or early May of every year is considered as a good time for investing and that day the purchase of gold for investment purpose also increases. For investment purpose gold mutual funds and Gold ETF are also there which provides security from handling liquid gold. Reasons to say YES to Gold The dollar is weak and getting weaker due to national economic policies which don't appear to have an end. Gold price appreciation makes up for lost interest, especially in a bull market. The last four years are the beginning of a major bull move similar to the 70's when gold moved from $38 to over $800. Central banks in several countries have stated their intent to increase their gold holdings instead of selling. All gold funds are in a long term uptrend with bullion, most recently setting new all-time highs. The trend of commodity prices to increase is relative to gold price increases. Worldwide gold production is not matching consumption. The price will go up with demand. Most gold consumption is done in India and China and their demand is increasing with their increase in national wealth.

Several gold funds reached all-time highs in 2007 and are still trending upward. The short position held by hedged gold funds is being methodically reduced. U.S. government economic policies over the past decade have systematically projected the U.S. economy down a road with uncontrollable federal spending and uncontrollably increasing trade deficits. Both will cause the dollar to lose in international value and will increase the price of alternative investments, such as gold. With the recent devaluation of many international currencies, the U.S. dollar was the international safe haven of last resort. We are seeing signs of this ending due to many financial factors, the most important one being a falling dollar. There are over One Trillion dollars ($1,500,000,000,000) of U.S. debt owned by foreigners which could be repatriated under certain conditions. This could cause a major decline in the value of the dollar and a soaring gold price. If you believe in 'buy low, sell high', gold is still low, but climbing.

Gold versus stocks Dow/Gold Ratio 1968-2008 In the last century major economic crises (such as the Great Depression, World War II, and the first and second oil crisis) lowered the Dow/gold ratio, an indicator of how bad a recession is and whether the outlook is deteriorating or improving, to a value well below 4. The ratio fell on February 18, 2009 to below 8.[54] During these difficult times, many investors tried to preserve their assets by investing in precious metals, most notably gold and silver.

The performance of gold bullion is often compared to stocks due to their fundamental differences. Gold is regarded by some as a store of value (without growth) whereas stocks are regarded as a return on value (i.e., growth from anticipated real price increase plus dividends). Stocks and bonds perform best in a stable political climate with strong property rights and little turmoil. The attached graph shows the value of Dow Jones Industrial Average divided by the price of an ounce of gold. Since 1800, stocks have consistently gained value in comparison to gold in part because of the stability of the American political system.[55] This appreciation has been cyclical with long periods of stock outperformance followed by long periods of gold outperformance. The Dow Industrials bottomed out a ratio of 1:1 with gold during 1980 (the end of the 1970s bear market) and proceeded to post gains throughout the 1980s and 1990s. The gold price peak of 1980 also coincided with the Soviet Union's invasion of Afghanistan and the threat of the global expansion of communism.

The ratio peaked on January 14, 2000 a value of 41.3 and has fallen sharply since. On November 30, 2005 Rick Munarriz of The Motley Fool posed the question of which represented a better investment: a share of Google or an ounce of gold. The specific comparison between these two very different investments seems to have captured the imagination of many in the investment community and is serving to crystallize the broader debate.[56][57] At the time of writing, a share of Google's stock was $405 and an ounce of gold was one day from breaking the $500 barrier, which it did December 1. On January 4, 2008 23:58 New York Times, it was reported that an ounce of gold outpaced the share price of Google by 30.77%, with gold closing at $859.19 per ounce and a share of Google closing at $657 on U.S. market exchanges. On January 24, 2008, the gold price broke the $900 mark per ounce for the first time. The price of gold topped $1,000 an ounce for the first time ever on March 13, 2008 amid recession fears in the United States.[58] Google closed 2008 at $307.65 while gold closed the year at $866. Leading into 2010, Google had doubled off that (100%), whereas gold had risen 40%. The analysis of log-linear oscillations in the gold price dynamics for 20032010 conducted recently by Askar Akayev's research group has allowed them to forecast a collapse in gold prices in May July 2011.[59] As of 18 July 2011, this collapse had not yet occurred, with gold at record prices of over $1600 per ounce.[60] In his book Basic Economics, Thomas Sowell [61] argued that, in the long-term, gold does not hold its value compared to stocks and bonds: To take an extreme example, while a dollar invested in bonds in 1801 would be worth nearly a thousand dollars by 1998, a dollar invested in stocks that same year would be worth more than half a million dollars. All this is in real terms, taking inflation into account. Meanwhile, a dollar invested in gold in 1801 would by 1998 be worth just 78 cents.

2010 14.32 2009 27.11 2008 -37.22 2007 5.46 2006 15.74

GOLD INVESTMENTS Five-Year Performance of Gold The past four years saw the price of gold triple in value from just over $600in January of 2007 to nearly $2,000 in September of 2011. While the price dropped off some since September, investors show continued confidence in the metal as economic turmoil around the world creates instability in other investment vehicles. Gold: 2007 and 2008 Performance 2007 High: $841 Low: $608 2008 High: $1,011 Low: $712 The biggest reason for the rise in the price of gold was the recession that hit in 2007-2008. Gold has a very low correlation to stocks and bonds so when the sub-prime mortgage crisis occurred in late 2007, investors turned to gold as a safe haven. Gold rose steadily throughout 2007 and into 2008 starting at just over $600 an ounce in January 2007 and peaking at $1,000 an ounce in March 2008.However, the price fell to $700, after Lehman Brothers filed for bankruptcy protection. Contemporary analysts suggested that the price drop was purely based on supply and demand among other factors, and that gold would once again rise. In short, once the financial crisis hit, people were forced to divest all assets, including gold, to cover their losses. Gold: 2009 and 2010 Performance 2009 High: $1,213 Low: $810 2010 High: $1,421 Low: $1,058 The price drop did not last long, however, as demand was still extremely high. Over the two-year period of 2009-2010, the price of gold continued to rise from $880 at the start of 2009, to $1,425 at the end of 2010. Though the recession officially ended in the middle of 2009, the dollar remained weak and the European debt crisis made the euro look risky. Also, the United States lowered interest rates and bailed out the automobile industry in desperate attempts to revive its economy. Both of these events signaled the potential for rising inflation. Gold is seen by many investors as a hedge against inflation as well as the depreciation of flat currency. Hence, demand was still strong and gold continued to rise. Gold: 2011 2011 High: $48.70 Low: $26.16 Gold reached its highest nominal price ever in August 2011, reaching$1,923.70 per ounce. It did decline in the beginning of the year though, dropping to $1,300

in February. The forecasts for 2012 are generally favorable; mostly predicting gold will hover just below $2,000 USD and perhaps even go above that. Gold: 2012 and Beyond Standard Chartered released a report in June of 2011 that is by far the most bullish of the forecasts, predicting that gold will reach $2,100 by 2014and perhaps as high as $5,000 USD by 2020. Perhaps most interesting about the increase price in gold per ounce will have to do with the fact that gold mining is projected to decrease. Early indications for 2012 were that gold costs would be closely tied to the Greece economic meltdown in the European Union. Additionally, in the US, the Federal Reserve is steadfast in keeping interest rates at historic lows until 2014. This will inherently impact the gold market, and could potentially drive the prices higher. One of the main opposition arguments over keeping interest rates low is that it could speed up inflation. The fed says it will continue to monitor inflation, which could impact gold prices in the wrong direction. THE VALUE OF GOLD Gold has been an excellent investment for some time, whether in the form of scrap, coins or bars. The overall trend of the value of gold is a testament to this fact. Since 2000, the price of gold in dollars has risen from under 300 dollars per troy ounce to over 1,700 dollars per troy ounce. Gold is now, more than ever, an extremely lucrative commodity and a great investment to have in your portfolio, in part by virtue of its high value. When buying gold, it is naturally very important to understand how gold is priced. Gold bullion is priced on the market by the troy ounce. The value of gold is determined twice daily at the London gold fixing. This is a meeting at which five bullion companies agree upon the value of gold in US dollars, pounds sterling, and Euros, and their determination is used as a worldwide standard by buyers and sellers of the commodity. Therefore, the price of gold is constantly changing. These days, of course, one does not have to go out and read a financial paper or even watch the news to find today's gold price. The Internet makes for an excellent and convenient tool for the potential gold buyer. Many websites keep track of the prices of gold and other precious metals throughout the day, and they're easily found through a simple Google search for "gold prices". If you are interested in either buying or selling gold, you should certainly look up the current value of gold in order to determine a fair price for the gold piece in question. Also, keep in mind that gold is often sold by the gram, due to its extremely high value. There are approximately 31.1 grams in a troy ounce, so if you are buying or selling gold measured by the gram, please keep this relationship in mind and convert the market price of gold in ounces to its price in grams.

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You have to double check the quality before you decide to make a purchase or an investment. Some of the traders try to woo investors by saying that certain gold coins cannot be confiscated by the government during emergency situations like war or civil crisis. These coins are priced heavily and the investor will not stand to gain any value for the higher amount he had spent. The investor should check the federal law governing the state pertaining to issues of confiscation. Types of Gold You can choose to own physical gold or through paper documents like shares and certificates. Some of the popular modes of investing gold are gold coin investing, gold stock investing, online gold investing, and gold bullion investing. Before you decide to invest in the metal you must decide which form suits you in terms of convenience convertibility and preference. Some of the popular forms of investment are as follows Raw Gold This is the most common form of gold. However it is not regarded to be safe and maintenance becomes difficult. If you are planning to invest in large quantities this method is extremely unsuitable. Should you still think of adopting this method then you should take adequate safety measures like keeping them in a bank locker. Jewelleries This form of investment is also equally famous. This form of investment can be especially beneficial if you are planning to trade them to the consumers and households. The advantage of raw gold and jewelleries are that they facilitate liquidity in no time. However you have to take lot of care to maintain jewelleries and it is not advisable to think about this method unless or otherwise gold investments are your full time trade. Gold Coin This form of investment is advantageous when compared with the earlier two forms because it is easily portable. However there are lots of gold coins specific to national boundaries and you must have a clear idea of their values before trading with them. It is also very easy to convert gold coins to other forms and as well as selling them for cash. Gold investment is no doubt a thrilling option. However they are not free from limitations. Many investors blindly take decisions on the basis of the ups and downs in the stock markets and this creates havoc especially when the gold

market is demonstrating a different behavior. Gold investment is very important as it contributes to the national and international economy.

Investing in Gold - How to Go About It? Gold continues to be a popular form of investment right for a very long time. People prefer to invest in gold because the returns are usually high and above all gold is a very famous ornament. Even if they don't get good returns they wont face losses because their cosmetic purposes will be served. Some tend to posses gold even as a matter of prestige. It is regarded to be a good source of investment as it controls inflations and even helps you to raise finances in the future. Gold Markets Gold is traded in many markets around the globe. London and New York are supposed to be large markets for gold and they function through the day. It is worth mentioning that Kong and Zurich market are also open to trading for 24 hours. The gold market functions like a stock exchange in l aspects of buying selling and determination of prices though the fact remains that different factors influence the price. World Gold Council World gold council is a forum of gold producers around the globe. The basic objective of this body is to disseminate information regarding investing in gold and also to create an awareness among the masses. They also lay down lot of guidelines for small scale producer's traders, consumers and other stakeholders. The association is headquartered in Geneva. Is investing in Gold a Good Idea? If you are thinking of returns or results in the short term then gold is probably not the right option. Investing in gold is no doubt a profitable option as it can be quickly converted to cash. It is a convenient as you can carry it easily wherever you go unless the quantity is very high. Since the performance of gold market s directly proportional to stock market it becomes easy to make calculations. Gold-A Precious Metal as Investment Gold enjoys innumerable advantages over other metallic forms. Platinum investment is very risky and moreover it is not easily convertible to cash. If you take the case of silver, it does not enjoy huge prospects in terms of financial gain.

Moreover silver occupies lots of space when compared with gold and so you it can cost you more for transporting. This should sound out to be worthless propositions given the monetary benefits are not promising. Factors to be considered before Investing in Gold You need to be very careful about investing in gold because unlike stock or other markets you don't have the option of investing a small amount. You must do lot of research and have a strong knowledge about the market information. You must decide how you are going to allocate it in the portfolio. Some investors choose to invest only in gold and not in any other sources. However this practice won't be suitable for all. Therefore you must first check up if you are falling under this category. Some other issues that are to be considered are as follows: Factors that Influence Gold Price Like any other resource the supply and demand constitutes to be an important factor in determining the price of gold. Since gold is a precious asset people even hoard it and its demand and price could increase drastically during inflation and even when there are wars. The price of gold shows an upward trend in most cases irrespective of the consequences due to the sentiment which people owe to the metal. They are prepared to pay any price for it. Gold Investment Strategies Some of the investors prefer to buy gold when the price increases because of the popular belief that it will increase further more and they can make profits by selling them thereafter. Other investors choose to buy gold when prices decline so that they can sell them at a higher profit when the prices increase. Another group of investors will make their decisions by testing if the current trend in pricing changes or not.