The Global Economy at Present
The global market is extremely unstable. Countries around the world are still reeling from the effects of the Global Financial Crisis. Some even claim that they are experiencing a continuous downward spiral with no bright prospects in the near future. But what is common among all states and their peoples is the fear that the global economy has reached its most volatile and most unpredictable condition. This anxiety has resulted to two polarized camps. On one hand are individuals who have started acting with utmost caution with their investments, engaging only in safe if not tried and tested industries. On the other hand, are persons who have transformed into risk – takers, willing to gamble with the hopes of defying the odds.
One of the long – standing debates when it comes to investments is the question of the viability as well as profitability of gold. It is one which has and continues to divide economic analysts. Before we discuss this split. It is imperative to understand the history and evolution of gold.
Gold in History
Gold is alleged to be the first metal widely known to the human species. This is attributed to the fact that it is one of the easiest metals to work with. Natural or unprocessed gold is pure and is almost always found in its workable state. Gold in its unadulterated form is bright, dense, soft, malleable and ductile. It usually has a slightly reddish yellow color.
Gold has always been considered important for its ornamental value. People in the ancient times thought of the mineral’s brilliance and permanence as symbols of prestige, wealth, respect and beauty. Because of this thought, they equated gold with their deities and royalties. This led to the widely practiced glorifying rituals involving gold.
Gold also enjoyed prominence prior to the introduction of money. It served as a natural trading medium since it was easy to melt, form and measure. Gold standardized coins then put the barter system out of business and dominated economic life. It is said that this precious mineral actually served as the basis for the invention of fiat currency characterized as portable, private and more or less permanent.
Gold together with silver were used in the past as measures of a countries richness. Mercantilism, an economic ideology prevalent then argued that a country’s wealth was based on the amount of gold and silver it had. This belief was carried on after several years by governments who implemented a gold and silver standard also known as bi – metallic system.
Gold’s Decline and Re – emergence
However, with the introduction of money or fiat currency, gold’s distinction experienced a downfall. A fiat currency is defined as a legal tender whose value is supported and financed by the government that issued it. This led some economists to consider gold obsolete and just a relic from man’s past.
But gold’s reputation soon helped people realize that it is still a force to reckon with as well as a safe investment in a sea of uncertainties that is surrounding the financial market. History is replete of stories that prove that gold is a precious resource. One of the most convincing narratives relate to great wars that have been waged in order to pillage gold from other kingdoms, chiefdoms or empires.
Gold has indeed stood the test of time. Its value, admittedly has experienced occasional dips (as all other economic goods), but its intrinsic value has not, in the real sense of the word, depreciated.
Investing in Gold: Choices and their Pros and Cons
In general, investing is a tricky business. This is why most people do not get involved in this activity. Investing in gold is no different. One must understand the rules and learn how to play by them in order to succeed. Knowledge then is key. Well, a bit of will to teach oneself of the fundamentals and adapt to the ever – changing conditions of the arena coupled by courage to take on the challenge are also vital. Discussed below are five ways of investing in gold.
Direct ownership of Gold – This is the most traditional and perhaps most known means of investing in gold. Actual ownership of gold in a wide array of forms – bars, coins or jewelry is perhaps the most intimate way of investing in the precious mineral. It is the ultimate proof of ownership. According to the gold experts, minted coins are the best option for this type of investment.
While direct ownership of gold brings immediate personal pleasure and undeniable bragging rights, there are also risks associated with it. The most obvious is the possibility of it getting stolen especially if it is not kept in a secure place. However, this can easily be solved by the provision of banks of safety deposit boxes or installation of the same in the owner’s house.
Another downside of this investment means is the fact that actual gold does not deliver and assure a fast return of investment (ROI). The explanation for this is that gold is also subject to the law of supply and demand. Its price depends on its availability (supply) alongside the desire to acquire the same (demand).
For those considering this option, it is essential to remember that gold is a defensive asset against the decrease in value of money. Ideally, it is a safety net when the value of a currency drops.
For those who are not comfortable with this choice, the four succeeding items provide alternatives through what the market calls “gold instruments.”
Gold Exchange Traded Funds (ETFs) – ETFs are a kind of mutual fund that works like an ordinary stock. It is a means to trade or participate in the stock exchange. An ETF’s exact portfolio is pre – determined and is not subject to change. While an ETF is a type of gold instrument, it holds gold bullion as its primary asset.
Gold Mutual Funds (GMFs) – These funds hold portfolios of gold stocks of established companies such as Newmont Mining, entities that mine gold hence have a direct contact with the precious resource. These large companies are known in the market as “senior gold stock.” They are well – capitalized and have been playing in the field for many years. They have a solid track record for profit. For those new in investing, senior gold stocks might be the best choice due to their moderate and conservative approach.
Junior Gold Stocks (JGS) – Compared to senior gold stocks, JGS are more speculative in nature. There are two reasons for this. First, Junior gold stocks are smaller and younger. Second, they are not usually owners nor major shareholders of productive mines. In spite of this, they are more aggressive in their stance – exploring strategies and plays that the older stocks do not delve in. Their operation is anchored on the hope of earning higher profits without disregarding the possibility of increased risks or losses. This type of investment is most fit for individuals with higher risk tolerance and who are willing to experience losses for the potential of exponential gains when the odds work on their favor.
Options and Futures for Gold Speculation – This option is for the more experienced, more educated and more aggressive investor. Speculating is defined as trading with financial instruments involving high risks in expectation of substantial returns. The underlying principle is to take advantage of and gain from fluctuations in the market.
Last say: To Invest in Gold or to take a Pass?
By now it should be apparent that investing in gold is not confined to
direct or actual ownership of said metal. There are alternatives available for those who would like to diversify their portfolios and be a player in the financial market. While the future looks bright for gold, caution should always be practiced. Gold investment scams such as networking have become prevalent in recent years. Its appeal rests on the promise of fast returns upon signing in. In as much as it is human nature to be enticed with all these glitter, one must not mindlessly and impulsively take the plunge. Investing entails careful and constant study. It is helpful to be always reminded of the old adage that says “If it’s too good to be true, then it probably isn’t.” Or in the case of gold, “If it’s too gold to be true, then it’s probably fool’s gold.”