Is Investing in Gold a Good Idea?

In general, gold is a fairly valuable commodity.  Like diamonds and other gemstones, as well as other precious metals, there is a finite quantity of gold in the world, so that gives the substance inherent value from the get-go.  Plus, it’s shiny, which people seem to think equates to some kind of intrinsic value.  But even beyond that, it is recognized to have trade value (as well as monetary value) pretty much anywhere around the globe.  So if you have actual gold, you can use it for barter in place of money, or trade it in for the current value in currency wherever you happen to be in the world.  But investing in gold is another matter entirely, and whether or not it’s a good idea depends on several factors.

In terms of investment value, gold should be considered in the same way as any other stock, which is to say speculatively.  At the moment, the price of gold on the investment market is quite high, which means it definitely isn’t a good time to buy.  In fact, many people who have invested in gold are currently trying to sell.  Like any other commodity, the value of gold will go up and down.  Remember a couple of years ago when the price of gold crashed?  It had been at all-time high and then the bottom dropped out.  But it came back up slowly over time, so that it is once again terribly high.  It goes in cycles that are not exactly predictable, but you can bet that if you hold onto gold investments long enough, they’ll eventually go down and then come back up again.

So at the moment, you probably don’t want to buy, but considering the supply-demand equation, more people selling than buying means that the price should begin to come down in the near future.  Another factor to consider is the value of the dollar, which is really what determines the value of gold.  It is relative to currency.  If you’re confused, consider that gold is what backs paper currency for most countries.  Since nobody really wants to carry around gold as a means of currency (it would get quite heavy), we use paper money that is guaranteed to have a value in gold.  If you’ve heard of Fort Knox, then you probably realize that there are places in the country where gold is stored.

Now, money continues to be printed, but the amount of gold in our coffers stays roughly the same, year upon year.  What this means is that the value of a dollar goes down, so that more dollars are needed to equal the same value in gold.  So the further the value of a dollar drops, the more gold becomes worth (although there are also times when the government takes money out of circulation to increase the value of the dollar).  So it’s not just about supply and demand of gold bonds on the stock market, it’s about the number of dollars you would theoretically have to spend to get a certain amount of gold.

The long and short of it is that you don’t want to start buying up gold coins online or purchasing gold stocks for your investment portfolio at the moment.  Wait until the price drops significantly before buying.  If, on the other hand, you have gold or gold bonds to sell, now might be an ideal time to do so – if you can find a buyer.

One Response to Is Investing in Gold a Good Idea?

  1. Kon Sama says:

    I love this post. It kind of explains everything the newbie needs to know without much technical stuff. Easy to understand and lots of good info. Thanks.

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