Friday 10 June 2011
Posted by
Admin Hijrah Dinar
Gold is a precious metal highly prized by many people and
cultures, and has a history of being used as currency or some other form of
money. It was only in 1971 when the Bretton Woods system ended that gold did not
anymore get used as currency.
Even so, gold is still nowadays considered as a good, safe
investment. Apart from the more common investments stocks, bank accounts, real
estate, bonds, and mutual funds, many individuals and entities choose to invest
in buying gold. Investing in gold is done for various reasons.
Gold, like other precious metals, is an asset that is both
tangible and liquid. Tangibility of course refers to the fact that it has a
physical presence that can be confirmed and sensed. Liquidity, on the other
hand, refers to the ease with which a particular asset can be traded. For
instance, stocks and bonds are liquid but not tangible, while a property of real
estate is tangible but not liquid. These properties are what have made gold such
a popular form of currency over the years.
The major advantage that gold possesses is a historically
proven stability. What this means is that even through political and economic
crises and fluctuations, gold has been seen to retain its value. This is because
gold, being a tangible physical thing, is mostly independent of any particular
political or economic climate.
Thus, one of the major reasons for investing in gold is to
preserve assets and overall wealth. Because of this time tested stability, the
value that is invested in gold is as stable and lasting as it is likely to get.
Over the centuries, in fact, looking at the big picture, no other asset or
investment can preserve wealth or value as well as gold can. Gold is thus often
invested in as a hedge against declining currencies, inflation, or even
political crises and financial instability. Gold provides a way for investors to
protect their money against most causes of depreciation or even dissolution of
investments.
On a related note, the value of gold is actually negatively
correlated to that of stocks and bonds. This is because as economy becomes more
unstable, the price of gold appreciates because of its relative stability. But
in stable economies, gold slightly depreciates because it is an investment of
low earnings as compared to others. So having investments in gold as well as in
stocks can serve to diversify a portfolio, making it more resilient to any
possible changes.
In addition, gold is a dense metal, meaning that a large
amount of gold can be stored in a small amount of space, making storage and
transport easy. Gold also has a high value to mass ratio, meaning that large
amounts of money can be stored quite easily in the form of gold bullions.
(Historically, the fact that gold is denser than some other metals has been used
to verify if a particular item or coin is in fact solid gold.)
Gold is also a commodity, like silver or copper. This means
that there is a market trading in these commodities that can be exploited by the
savvy investor. By adhering to the principle of supply and demand, as well as
being aware of the factors that affect the gold market, one can stand to make
some money by buying and selling gold. At present, demand is beginning to
increase faster than supply, as India and China demand more gold. China in
particular has one of the most rapidly growing economies in the world, and is
interested in converting a larger portion of its reserves into gold.
Gold retains its value over the centuries, and can serve to
diversify any portfolio. It is easy to transport and store. Gold can also be
treated as a high-value commodity to be traded in. In financial terms, then,
gold, not diamonds, is forever.
Category:
Gold Saving / Investment
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