With the U.S economy on the brink of another recession, investors are worried on where to put their money. U.S Treasury yields for ten year old notes fell to less than 2% on August 18th 2011. There is uncertainty in the markets with high explosiveness in capital markets, so, investors are looking at other reliable products to invest in. Investing in gold and silver are currently very popular with investors and sell at $1822 and $40.68 respectively. More and more, a larger base of new investors are diversifying into investments in gold as staple of their portfolio mix.
In 2001, the price of gold averaged to $272.36 per pounce. Ten years later, it’s selling at a mean price of $1,496.50 per ounce. Gold has been known as a stable commodity and a good bet against inflation since its entering in the markets. In normal times, the US currency is invested in but with recent news on the US government’s debt crisis and their drop in rating by Standard and Poor, investors are looking into investing in gold bars and bullions as safe havens. Investing in gold requires a lot of research and advice which can be gotten from gold bullion banks and financial analysts.
Demand for Investing in Gold
The World Gold Corporation submitted a gold demand report for the second quarter. Global demand for gold was at 920 tonnes which is equivalent to $44.5 billion. This is the second value on record though this is a dip when compared to 2010 which was higher by 17%. China and India are the two biggest traders in gold. The added demand for gold in these two countries accounts for most of the worldwide demand. In the United States and Europe, gold demand fell by 22% and 48% respectively.
Gold is a dependable asset during times of high inflation. It is an asset that needs to be safeguarded unlike stocks that are in virtual space and cannot be stolen so gold has to be insured. Gold does not gain interest and won’t grow like stocks and bonds. Gold has an inverse relationship with assets such as cash, stocks and bonds. When the federal government pumps a lot of cash into the economy in order to stimulate it, inflation rises and investors rush to investing in gold. In times of prosperity, stability and normalcy, gold loses value until when disasters strike again.
Gold is a precious asset because for centuries it’s been seen as a valuable measure of currency and can be kept safely where volatility won’t affect it. The recent headlining news about raising the debt limit in the US government and the growing debt crisis management in most of Europe, gold is seen as a valuable form of currency for investors. Most banks buy gold during volatile times in order to hedge and ride out the unpredictable period of time. The US dollar acquired its value from gold and the famous currency gave value to most assets in the world. So many banks and organizations have stored dollars in their reserves and have no way of trading them for gold as the precious gem is selling out.
Jewelry which includes bracelets, earrings and rings can be sold and account for half of all gold tradings. Gold coins value are determined by the value of the gold content plus a difference that changes between change and traders. Gold bars are available in different weights and sizes depending on the investors need.
Exchange traded gold is a security in the stock market that tracks the price of physical gold and can be converted to gold when there is high volatility and inflation. Gold accounts are offered by banks as storage accounts for gold bars. Unallocated accounts are used for investors who wish to remain anonymous and don’t have specific bars in their name while allocated accounts have their gold bars allocated to them. Certificates are issued by banks as proof of gold bars stored in banks. Other products are bonds which are linked to gold bars and upon maturity reflect the gold price at that time. Investing in gold bullion bars is cost effective because the bars offer the lowest dealer percentages over gold shares depending on the bars size. Gold coins can be sold in the open market easily when compared to big gold bars.
In conclusion, gold is a reliable asset to hedge against during high inflation. The price of gold is at an all-time high and is set to continue to rise. Investing in gold is a smart move because it is not affected by volatility or uncertainty. Some investors buy gold for speculation purposes that is they hope they can sell the gold for a profit in the future. In either case, gold will be around for a long time and is an asset investors can count on.