Investing in Gold

Gold has a dual personality. It is a “store of value” and it’s an industrial commodity used mainly in jewelry but also in dentistry and electronics. The industrial use of gold declines whenever the price rises. The gold price, at least in the short run, is a barometer of world anxiety. Bad news for humanity is good news for gold and the opposite holds true. An outbreak of peace and goodwill on this planet would cause a crash in the gold price. Aside from the flow of political anxiety, the major determinant of the gold price is inflation- more specifically, the extent to which inflation prompts a flight from paper money ( and investments such as bonds).

Gold performs the best when inflationary expectations are rising but interest rates are not yet in the stratosphere. Extremely high interest rates tend to depress gold because borrowing costs then become a deterrent to speculators who buy gold futures on margin. Moreover, gold, which produces no income, becomes less attractive to some investors when the yields on money-market securities are exceptionally high.

Since the inflation rate is strongly influenced by increases in energy costs, there exists a correlation between the price of golf and the cost or a barrel of oil.

 

The conventional wisdom is that most investors should consider putting 5 percent of their assets into gold and 15 percent or more when inflation looks particularly threatening. In addition to being a hedge against high inflation, gold investments usually hold up or rise in price when there is a big slump in the stock market; they are, in effect, a form of “disaster insurance.

Click Here For Goodies