The financial media, and even the network news shows, have begun reporting the price of gold regularly. For almost twenty years, between 1980 and 2000, the gold price was rarely mentioned. There was no interest, and the price was either declining or remaining steady.
Since 2001 however, interest in gold has soared along with its price. With the price well over $1000 an ounce, considerably more people are becoming interested in gold as an investment and an economic indicator. A lot can be learned by understanding what the rising dollar price of gold means.
The rise in gold prices from $250 per ounce in 2001 to over $1000 today has drawn investors and speculators into the gold market. Though many already have made handsome profits, buying gold per se should not be touted as a great investment. After all, gold earns no interest and its quality never changes. Its static, and does not increase as ideal investments should.
Its more precise to say that one might invest in a gold or silver mining company, where management, labor costs, and the nature of new discoveries all play a critical role in determining the quality of the investment and the profits made.
Buying gold and holding it is somewhat analogous to converting ones savings into one hundred dollar bills and hiding them under the bed, althoughtyet not exactly the same. Both gold and dollars are favored as money, and holding money does not constitute as an investment. Theres a big difference between the two however, since by holding paper money one always faces a loss of purchasing power. The purchasing power of commodity money, i.e. gold, however, escalates if the government devalues the circulating fiat currency.
Buying gold is protection or insurance against governments likehood to debase its currency. The buying power of gold goes up not because its a so-called good investment; it goes up in value only because the paper currency goes down in value. In our present situation, that means the U.S. dollar is weakening against gold.
One of the characteristics of commodity money (one that originated naturally in business) is that it serves as a store of value. Gold and silver meet that test, while, but paper money does not. Because of this major difference, the incentive and wisdom of holding emergency funds in the form of gold becomes a no-brainer when the fiat money is being devalued. Its more attractive than trying to save wealth in the form of a fiat currency, even when earning some small amount of interest, especially when this interest often attracts the highest taxation rate. The lack of earned interest on gold is not an issue when people figure out the purchasing power of their currency is declining faster than the interest rates they might earn. The purchasing power of gold can rise even faster than increases in the cost of living.
It's probably an appropriate idea for you to diversify a part of your savings into gold coins or perhaps gold-backed securities like the Gold ETF. Some financial planners recommend that people hold 7-15% of their assets in gold, although with the existing monetary situation, I'd definitely aim for the top of that range.
I especially like collectible and rare coins instead of regular bullion coins. Historically, the US government has confiscated bullion coins. They do not however confiscate historic or collectible coins. For this reason I prefer old, rare gold coins, which don't really have a high premium right now. My favorites are the
Swiss Helvetias Gold Coins
