Why Gold Investors Invest in Gold
Historically, gold has been a proven method of preserving value when a national currency was losing value.Investors generally buy gold as a hedge or harbor against economic, political. or social fiat currency crises (including investment market declines, burgeoning national debt, currency failure, inflation, war and social unrest).
If your investments are valued in a depreciating currency, allocating a portion to gold assets is similar to a financial insurance policy. The last ten years are a major bull move similar to the 70's when gold moved from $38 to over $800. Jew people use gold to get out of Germany during the Wold War 2. They use gold to pay the guards at the border. If you have to restore big value fast, to do a big payment as the example above, gold is excellent.
Central banks in several countries have been increasing their gold holdings as part of their foreign reserves, instead of selling. Demand have gone up.
Worldwide gold production is not matching consumption. The price will go up further with demand.
Most gold consumption is done in India and China and their demand is increasing with their increase in national wealth.
U.S. government economic policies over the past decade have systematically projected the U.S. economy down a road with uncontrollable federal spending and an 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.
Gold is more than just another commodity, it’s a currency. It is "the currency" that evolved in the marketplace over the last 5,000 years.
Gold and silver are the only currencies not created and controlled by governments. All of today’s other currencies (dollars, euros, yen, pounds, renminbis, rupees, etc) are ‘fiat’ currencies, which means they do not represent anything tangible but are only worth something due to government decree.
Governments always end up creating too much fiat currency out of thin air. All fiat currencies in the past have ended up worth very little, collapsing into hyperinflation or threatening to. Gold will hold it's value.
How to Invest In Gold
The most traditional way of investing in gold is by buying bullion gold bars. In some countries, like Canada, Argentina, Austria, Liechtenstein and Switzerland, these can easily be bought or sold at the major banks. Alternatively, there are bullion dealers that provide the same service.
Gold coins are a common way of owning gold. Bullion coins are priced according to their fine weight, plus a small premium based on supply and demand (as opposed to numismatic gold coins which are priced mainly by supply and demand based on rarity and condition). The most popular are one oz coins such as the American Eagle, Canadian Maple Leaf, the South African Krugerrand, and the Austrian Vienna Philharmonic. They are easy to keep and transport and closely match the price of gold with a small premium. More specific details.
Gold exchange traded products may include ETFs (exchange- traded funds), ETNs ( Exchange-traded notes), and CEFs (closed- end fund) which are traded like shares on the major stock exchanges.
A certificate which represents ownership of gold bullion held by a financial institution for convenient and safe storage. There is a fee for storage and insurance. Gold certificates allow gold investors to avoid the risks and costs associated with the transfer and storage of physical bullion.
Many types of gold "accounts" are available. Different accounts impose varying types of intermediation between the client and their gold. Many banks offer gold accounts where gold can be instantly bought or sold just like any foreign currency on a fractional reserve basis.
Derivatives, such as gold forwards, futures and options, currently trade on various exchanges around the world and over-the-counter (OTC) directly in the private market. This method is generally leveraged and options provide price movement much more than that of gold itself. It can be used to sell short and can be used to benefit from a drop in the price of gold.
Stock ownership of a company traded on one of the exchanges. The price movement is dependent not only upon the price of gold, but also upon the future of the corporation and management. It's price movement is almost always more than the movement of gold itself. If the gold price rises, the profits of the gold mining company could be expected to rise and as a result the share price may rise. However, there are many factors to take into account and it is not always the case that a share price will rise when the gold price increases.
Representing the largest consumption of gold each year, jewelry is a major method of savings in developing economies.