Gold Investments

Why people invest in gold

People invest in gold as a hedge against inflation. This means if a particular person wants to protect their wealth over an extended period of time that have to get out of cash and buy something that will not depreciate over that period. Of course, people buy real estate, land, stocks, government, and private bonds and of course precious metals. Different currencies are great for short term liquidity, but over an extended period of time, even for ten years, can prove to be a bad choice.

So to reserve your wealth you MUST get out of currencies during inflationary times and get into currencies during deflationary times. If you study financial markets over time, you will see that there is no real deflation outside of market crashes. When a market crashes, of course the best asset to be in is cash. But crashes are always short and then you see inflation drawling back in.

The trick is to pick an asset where you will see price increase the most compared to other assets. As you can imagine, timing is extremely important. but over extended periods of time, you can count on inflation and whatever asset you have, it will do better than cash and one of the best assets you can own is precious metals.

Save in gold or invest in gold

In order to answer this question, we first have to understand the difference between savings and investments. To me, and to many others, Gold as a metal is money, and money is not an investment, money is money, you use the money to save and to make transactions. When you exchange your money for something else, for example, bonds or stocks, then you have an investment and investment is always riskier than savings.

When you own gold, you own money, it is like any other currency like USD or EUR, but in times of inflation much better since it preserves your purchasing power. During inflation, euro and dollar and any other currency are losing their value (their purchasing power) but gold offsets that and increases in the price of those losing currencies.

WHAT DO YOU MEAN PRESERVE THE PURCHASING POWER?

For example, your grandpa had a savings of $10000 in 1965, fifty-five years ago and he decided to save that amount for the future, his and his family’s future. In 1965 that amount was very significant, you could have bought a ford Mustang for $2300 for example. so if he had saved that $10000 in dollars he would still have that same $10000 but the amount of stuff you can buy for that amount has changed significantly compared to 1965. In 1965 he could have bought four Mustangs and still have some cash for gas, but today, that won’t buy you not even half of that car. In fact, I don’t think that there is ANY new car you can buy for $10000 anywhere in the world.

Conversely, if he had changed his $10000 for gold in 1965, he would have got 285 gold coins which are now worth $570000. Even in the year 2000, when gold was at it’s 20 year low at about $300, those 285 coins would be worth $85500 and that would be enough to buy four Mustangs, same as in 1965.

Saving in cash for the long term is not only a bad idea, but it is a guaranteed way to lose your wealth.