Investing in Gold

so many types of investments, and one of them gold. whether when you buy gold for investment purpose or just a jewelry? should you need to know what your motive for buying gold.

Here are the main reason investors, including gold in their investment portfolios:

1. Gold provides portfolio diversification

The low gold price correlation with bond and stock prices make gold useful addition to mixed investment portfolio in order to smooth the volatility of portfolio returns and lower long-term.

2. Gold is an inflation hedge - a store of value - in normal conditions

Goods, land and equity prices tend to increase prices from time to time pressed by consumer demand as the government increases the money supply. Increasing the money supply to support the increased personal income, which encourage both savings and consumer spending, which stimulates the economy. But as prices rise, the purchasing power as measured in the currency declines (dollars). Because the price of gold, silver and other commodities will rise over the very long term, who have them maintain the value of your property (at least before taxes).

3. Gold is an effective hedge against dollar weakness

When paper money (money with no intrinsic value and not converted into something with intrinsic value) to depreciate as investors less inclined to hold it (for whatever reason), the price of gold in the currency tends to increase.

Historically, gold has shown an inverse relationship to the dollar, by order of the correlation of -0.6, making it an effective hedge against dollar weakness.

4. Gold is a very good investment during periods of hyperinflation

The reluctance of investors to hold their own currency in extreme cases lead to hyperinflation (and possibly to the collapse of the economic system). In this case the holders of dollars will buy commodities.

The flight to quality since the explosion of the real estate bubble and the collapse of Lehman Brothers has led to high prices for Treasury debt, credit contraction, and avoid taking risks, in turn caused high unemployment. If the U.S. lose triple-A credit ratings because of recurring high budget deficits, not only will affect the willingness of holders of debt to roll over their Treasuries but may trigger an exodus from the dollar and cause hyperinflation. To defeat the rapid dollar devaluation that accompanies hyperinflation, investors will pile into gold, silver and other commodities.

5. Gold is held securely in case of disaster

Because of its global acceptance and store of value, gold is traditionally a safe haven investment. In the case of the destruction of the economic system, people want to have physical gold because a portable hard assets that will be asked to buy something of value, such as food, and because of durable assets (such as cars and houses) may decline in price like most that an investor who has the gold physically will be able to buy it cheap.

Other factors that influence your investment decisions

There are other considerations that will motivate individuals to buy gold or not to buy gold at a certain time and that will affect the form most appropriate for gold investment. Among them: the time horizon you are, how much wealth you have to protect, your view on future inflation and future tax rates, what other assets you hold, and your views on the economy, government action and public debt.