Investing in Gold

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There are a number of attractive options for investing in gold and there are pitfalls. Gold stock investing includes mining companies and derivatives. Many gold bugs will say that how to invest in the stock market during hard economic times is to invest in gold. However, the true gold bug will advise that you buy and hoard gold bullion or rare gold coins. A current scare tactic in the gold coin market is that “the government will come again for your gold.” Roosevelt signing his executive order to prevent gold hoarding is rewritten as the confiscation of gold. Gold peaked in 1980 after a decade of inflation and promptly dropped. Gold bullion has not made it back to 1980 prices adjusted for inflation despite a four fold increase in value in the last decade.

Just as the stock market offers many different types of stock so does gold investing. Gold mining companies have a fairly predictable overhead so when the price of gold goes up these stocks often perform in multiples to the increase of the spot price of gold bullion. When the price of gold goes down gold stocks can become very unprofitable. There can come a point where it does not pay to take the gold out of the ground. In those cases an investor would have done better buying gold bars to put in a safe deposit box.

Debt and growth are big issues for those investing in gold just as they are for many investing in the stock market. However, gold investors are typically hoping for the opposite that traditional investors want. People often buy gold because having the physical gold gives them a sense of security. Many of these folks buy more gold when the economy is in a recession believing that the next logical step is that the currency will fail. Post WWI Germany is commonly given as an example of how hyperinflation wipes out the value of “paper’ currency. When investing in gold be sure of your facts and keep a clear perspective.

If you think that picking new winners means investing in gold then derivatives may be a good choice. The virtue of gold derivatives is that you do not need to buy and sell gold bars and coins. You buy shares in a company who sole assets are gold and transactional cash. If the value of gold bullion goes up your shares go up and if the value of gold bullion goes down so does your investment. As with stock options and other derivative investments you can trade online. Selling gold derivative shares is quicker and easier than mailing your gold bullion coins back to the dealer.

In gold investing make sure to be doing it for the right reasons. Gold is not a panacea. People who trade in gold can make a lot of money and people who trade in gold can get burned. If you buy gold bullion and store it you may make a profit by selling it later but you don’t get any current return on investment. A fundamental analysis of gold bullion prices will tell you that gold has periods of substantial appreciation followed by monumental loss.

The question is always is gold a good investment now?

When investing in gold be mindful of the old saying from the California Gold Rush days. “When everyone is digging for gold is the time to be selling picks and shovels.” With a picture of miners celebrating at the end of a long day in mind, investing in beer could also be a good choice.

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