For centuries, individuals have been obsessed with gold, the most popular precious metal where investing is concerned. For decades now, anytime there is economic instability, smart investors have always turned to gold as a safe investment as well as a hedge against a falling currency value that is declining and inflation. You can invest in gold in a number of ways including bullion or bars, gold coinage, and indirect venues such as investing in a gold mining company. Should the regular investor purchase gold? Here are some pros and cons to consider.
The pros of investing in gold
• Being a physical metal, gold has intrinsic value as well as industrial applications unlike most currencies
• Over the next few years, inflation is expected to accelerate
• The earnings on gold investments are not correlated with bonds and stocks as well as the real estate market which makes it an ideal diversifier during turbulent economic times
• The US Dollar is likely to continue depreciating throughout the year
• There is a rising demand in the industrial sector for gold
• Unlike the Euro or the US Dollar, the value of gold can never be zero
The cons of investing in gold
Ironically you could have bought a nice men’s suit in 1808 with an ounce of gold and today that same ounce of gold will still buy a nice men’s suit – over lengthy periods of time, gold maintains purchasing power. It doesn’t increase it. Unless you are a genius with purchase and sell timing strategies, it is unlikely that you will attain any wealth when you invest in gold.
Gold does not create any real economic value, nor does it pay dividends or interest – conversely, stocks represent an investment in a breathing, living entity. Stocks have the ability to either create or destroy what is considered real economic value. Additionally, gold cannot and will not beat the best stocks over the long haul. This is based on the fact that good stocks originate from good companies and create wealth when none existed before.
It is extremely difficult to predict what direction the price of gold is going to go – timing is always everything when it comes to investing in gold since no long-term value is created. The unfortunate aspect of investing in gold is that it is extremely difficult to predict when the value is going to bottom out or peak. If the experts have difficulty doing this, what chance does a novice have at succeeding with gold investing?
Gold isn’t consumed but it can be altered in form – gold is a transmutable precious metal. Interestingly enough, all of the precious metal that has ever been mined throughout history still exists today. Additionally, the global supply continues to increase as more and more of the metal is currently being mined today. If inflation increases slower than the growth of the supply of gold, it is likely that it will decrease in value, although this scenario is not likely to occur.