Wednesday, August 25, 2010

Investing in Gold

For the past 5000 years, gold has been the most sought after commodity. For those who understand the monetary system and the mechanics behind it, they will undoubtedly be aware that gold is and always has been a solid investment choice. At the very least, it can be considered a hedge against inflation. As current markets undergo drastic changes, there has never been a more crucial time to invest in gold.

There are a number of essential factors that should be taken into consideration regarding gold and is financial value. First, gold is both a commodity and a currency unto itself. Gold along with silver are both currencies that are beyond government control. (At least gold is currently legal to own in the US.) All the currencies currently used, such as the Euro, dollar, pound, and yen, are all forms of fiat currencies, which means that their value is intangible, and their worth is merely set by their government’s declaration.

The problem with fiat currencies is that governments in the past have had a tendency to over-create, which subsequently leads to hyperinflation and an inevitable collapse of the country’s economy. Several years ago, many world currencies could be converted to gold. Not anymore.

Some theorists believe that during the last fifteen years, governments and world banks have been trying to keep down the price of both gold and silver. They believe that once governments stop trying to suppress the price of gold by lending and selling their gold, the price of both commodities will rise substantially.

The best way for most investors to invest in gold is through ETFs (Exchange Traded Funds), a financial tool that works much like a mutual fund except that instead of holding a basket of stocks, they own gold. For example, SPDR Gold Shares (GLD) holds gold bullion and is up over 23% for the year. The five year average annual return is 19.8%.

For investors who think that silver may be a better buy, there is the PowerShares DB Silver (DBS) ETF, which owns futures contracts on silver. The ETF is up 48% for the year.

One of the main reasons why investing in gold through ETFs is a wise option is that it is much easier to hold: no storage costs, no safe deposit box, no risk of being taken by burglary.

Many investors believe that gold is a great hedge to counter inflation, and given the risks evident in the condition of the global market, gold stands as a solid asset that can withstand all financial tides. Gold remains in constant demand regardless of the fluctuations of global markets.

To find more information about gold and silver ETFs, check out the free list at the site.

Author does not own any of the above.


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