Why You Should Buy Gold?

The financial press, and even the network news shows, have begun reporting the price of gold regularly. For almost 20 years, between 1980 and 2000, the gold price was rarely mentioned. There was almost no interest, and the price was either declining or remaining steady.

Since 2001 however, demand in gold has soared and so has its price. With the price well over $1000 an ounce, many more people are becoming interested in investing in gold and an economic indicator. Much can be learned by understanding what the rising dollar price of gold indicates.

The rise in gold prices from $256 per ounce in 2001 to over $1000 today has drawn investors and speculators into the gold market. Though many already have made tremendous gains, buying gold per se should not be touted as a good investment. After all, gold earns no interest and its quality never changes. It's static, and does not increase as ideal investments should.

It's 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 an important role in determining the quality of the investment and the profits made.

Buying gold and holding it is somewhat similar to converting one's 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 count as an investment. There's a large descrepancy between the two however, since by holding paper money one usually faces a loss of purchasing power. The purchasing power of commodity money, i.e. gold, however, goes up if the government devalues the circulating fiat currency.


Buying gold is protection or insurance against government's tendency to debase its currency. The buying power of gold goes up not because it's a so-called good investment; it goes up in value only because the paper currency goes down in value. In our current situation, that means the U.S. dollar is weakening against gold.

One of the characteristics of commodity money (one that came about organically in business) is that it must serve 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 smarter when the paper currenty is being devalued. It's better than trying to save wealth in the form of a fiat currency, even when getting some nominal interest. The lack of earned interest on gold is not a problem once people figure out the purchasing power of their currency is declining quicker than the interest rates they might get. The purchasing power of gold can rise even faster than increases in the cost of living.