Gold is often referred to as the ultimate asset, as it can provide investors with safety, security, immediate accessibility, liquidity, and all around low risk. Fiat money has no intrinsic value, as it is based solely on faith in the government issuing it. Gold on the other hand has intrinsic value and it cannot be created or printed out of thin air like paper currency can. The intrinsic value of gold offers protection from the devaluation of fiat money, such as the U.S. dollar. Gold has held its value for over 5,000 years, whereas the typical lifespan of a fiat currency is roughly 100 years. Let National Gold Group help you protect your wealth, and your future, with physical gold.
Investing in Gold: A Guide for the New Investor
Just like any other type of investment, buying gold first requires research and education. How do you ensure you are making a sound investment? Consult the experts.
At National Gold Group, we believe in gold’s immense value as a portfolio diversifying and balancing tool. We are committed not only to educating our clients in the benefits of investing in gold, but also to making the process easy and readily understandable.
In an attempt to cover the basics, some valuable information is provided below. However, if you’d like to discuss your options or address any questions immediately, call us at 877.515.1050 to speak to one of our qualified analysts.
The Top Six Reasons to Invest in Gold:
I. PROTECTION AGAINST INFLATION
With the dollar growing consistently weak and increasingly powerless in the global economy, gold will surely reclaim its place at the epicenter of the global financial system. Historically, the most enduring determinant of the value of gold has been inflation: as inflation increases, the price of gold typically rises along with it.
To illustrate, consider the following statistic: during the years with the highest recorded inflation rates since WWII—namely, in 1946, ’74-’75, and ‘79-’80—the average real return on stocks (according to the Dow) was -12.33. The average real return on gold, by contrast, was a staggering 130.4%
Today, various aspects of our current socio-economic system are effectively setting us up for an inflationary explosion; careless fiscal policy, multi-billion dollar bailouts, and overwhelming trade deficits will inevitably end in financial disaster. As gold and various other commodities reach peak price levels, the US dollar continues to plummet. Thus, the market conditions that could potentially destroy your stock portfolio provide great incentive to invest in hard assets such as gold. Gold is worth more than dollars; gold is store of value more powerful than any currency.
II. HEDGE AGAINST A WEAKENING U.S. DOLLAR (USD)
Because gold is purchased and sold in dollars, any decline in the value of the USD triggers an increase in the price of gold. The U.S. Dollar is currently the world’s reserve currency, the main currency held in reserve by central banks across the globe. This makes it, amongst other things, the primary vehicle for most international transactions, and the currency in which the value of commodities and equities is calculated.
Yet, with the abandonment of the gold standard, each dollar printed is no longer backed by a quantity of gold. Simply, it holds no intrinsic or real value, and is nothing more than a piece of paper. The American dollar is already in a precarious state, unable to fare well in the global financial system. Due to our current debt crisis in America, this trend will surely continue in the coming future, with the dollar growing only deeper in decline.
III. GOLD AS A SAFETY MECHANISM
Gold is often called the “crisis commodity” because it tends to outperform other investments during periods of political or economic instability. The same factors that cause most traditional investments to suffer will typically cause the price of gold to rise. Thus, delegating a portion of your assets to be represented in gold makes for a multi-faceted and stable investment portfolio.
Gold also offers safety from governments’ dangerous overuse of their printing presses. When governments need more money, they simply print more, and eventually they print so much of it that it has little to no value at all. Yet, as currency becomes worth less, gold becomes worth more; the lower the nationwide confidence in government, the higher the value of gold.
IV. GROWING DEMAND, LIMITED SUPPLY
The demand for gold is quickly surpassing the available supply. With gold production on the decline, many experts wonder whether we have already hit our gold “peak”.
Central banks around the world—particularly those in China, India, and Russia—have stopped selling their gold and are instead buying it in multiples of tons, effectively driving up the price. China and India also encourage their wealthy citizens to accumulate bullion. With the dollar on the decline, China will surely purchase masses of gold in the near future in an attempt to dissociate from at least a fraction of its near $2 trillion USD reserves.
The demand for gold also is surging from central banks, who have recently become bulk buyers in attempts to recoup vast quantities of gold sold in years prior (at one point they were selling an average of 400 tons per year). Last year, central banks added the most gold to their reserves since they had in 1964. The federal administrative sector will likely be the greatest gold buyer for years to come.
V. PRESERVATION OF VALUE
One of the principal reasons that investors consistently look to gold as an asset class is because it will forever possess an intrinsic value—which is, of course, partly informed by market conditions. Gold cannot get lost amidst an accounting scandal or an unforeseen market collapse. In a 1998 report for the World Gold Council, Economist Stephen Harmston of Bannock Consulting offered this perspective:
“Although the gold price may fluctuate, over the very long run gold has consistently reverted to its historic purchasing power parity against other commodities and intermediate products. Historically, gold has proved to be an effective preserver of wealth and a safe haven in times of economic and social instability. In a period of a long bull run in equities, with low inflation and relative stability in foreign exchange markets, it is tempting for investors to expect continual high rates of return on investments. It sometimes takes a period of falling stock prices and market turmoil to focus the mind on the fact that it may be important to invest part of one’s portfolio in an asset that will, at least, hold its value.”
VI. PORTFOLIO DIVERSIFICATION
Investment advisors widely recommend diversifying your investments as a means to ensure solid portfolio performance. Diversification reduces your risk level, and the most effective way to reduce your exposure to risk is to invest in assets whose performance is not intimately linked (such as stocks and bonds).
Gold is an ideal diversifier to invest in alongside a stock portfolio because it lies in negative correlation to the stock market. Simply put, when stocks plummet, the price of gold soars.
Gold also enables you to hedge against the eroding buying power of dollars (or printed money, in general). This phenomenon is commonly called currency de-valuation. While the price of gold may suffer from short-term volatility—like any commodity—gold has maintained its value over the long-term, especially when currencies fail.