Why is an investment in gold a good inflation investment?
January 8, 2010 by
Filed under gold investment
In addition to the question above, mechanically how does gold prices correlate to inflation? Also, what is a good gold investment for the common individual investor? Lastly, is it a good time to invest in gold?
An Investment in Gold is a Good Inflation Investment ONLY if the Return on your Investment is higher than the Inflation in the same period of time. If you invest in Gold and lose 20% of your money in a year and that year the inflation in your country was 2% then your investment in gold was not a good inflation investment.
Inflation is an increase in the general level of prices of a given kind in a given currency. Inflation is measured by taking a “basket” of goods, and comparing the prices at two intervals, and adjusting for changes in the intrinsic basket. Gold is not a currency anymore and the Gold Standard is no longer used in any nation, having been replaced completely by fiat currency. Gold Prices are determined only by the market and the price goes down if everybody is selling and the prices go up if everybody is buying. I don’t believe there is a relation between Gold and Inflation but I could be mistaken.
If you must buy the actual metal I suggest you to open an account in goldmoney.com This is a very well known and respectable Company founded by a Chase Banker years ago and they keep your Gold in Vaults and Insured and you can easily sell the gold back to the company at any moment at the current market price (They are backed by 2 Gold Mines)
However, I don’t recommend you to buy the Actual Metal if you are an individual investor.
State Street Corporation (NYSE:STT) was founded in 1832 and you can visit it’s website at http://www.statestreet.com
They are the second ETF with more assets (About $70 Billion USD)
They sell 1/10 Ounces of Gold to Small Investors with an instrument called streetTRACKS Gold Trust (NYSE:GLD) and the trust currently manages over $4 Billion USD. The Expense Ratio is just 0.4%
The Biggest ETF ($1 Trillion USD) is Barclays and you can visit at http://www.barclays.com
They too sell 1/10 of a Gold ounce to Small Investors with its iShares COMEX Gold Trust (AMEX:IAU)
I don’t recommend you to buy any of these ETFs either.
If you must invest in Gold I ssugest you stocks in Gold Mines.
It’s always good to invest in Gold at War Times.
However, the War in Irak started a few years ago.
It may be good to some investors to invest in Gold now but this does not mean you should invest in Gold.
I need to know your current portfolio, your annual income, your age and of course your goals and tolerance to risk to give you better advice. Drop me a line if you need more detailed information.
Gold is a lousy speculative investment. Invest in a diversified portfolio of mutual funds over many years and don’t worry about inflation.
Gold has increased in value at the rate of 1.47%/year since 1988. Gold is currently very near its high for the period . . . If you had bought it at its lowest point since 1988 you would have made over 100% as of today.
If you bought an S&P 500 fund at its lowest point since 1988, you would have made over 600% as of today . . .
Gold prices are very volatile. The price is constantly changing in unexpected directions. It was selling at $850 in 1981, and has jumped around a lot since then. Last I saw it was selling at $567. It hasn’t kept up with inflation since 1981. I’m sticking to stocks and bonds and holding out for the long term. Gold buying is gambling from my perspective.