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Who Told You to Buy Gold?

Goldstein

Have you ever dreamed of being like the mythical King Midas whose touch turned everything into gold? There is no question about it – gold symbolizes wealth and riches. Even though the Gold Standard is no longer the world’s main monetary system, this precious metal still carries a certain mystique.

Today plenty of people are looking to invest in gold. But is it really such a good idea? Many people got the “gold bug” over the past year, only to get shaken by its volatility. This may be because in January 2012, the London Bullion Market Association published a survey that predicted a rise in gold prices to $2,000 per ounce. However, since then, gold prices have oscillated sharply, only reaching $1600 at the end of May, having fallen as low as $1540 in the preceding days.

Despite its volatility, there are various reasons why people want to buy gold. Some investors have little faith in hard currency and prefer to invest in a commodity such as gold, which they believe will always have value. Indeed, the value of the precious metal often rises when other currencies fall, and in today’s shaky economy may be more dependable. History also works in favor of the gold investor. The gold rushes of yesteryear have left supplies depleted, and this scarcity adds significantly to the value of this precious metal.

However, not all is plain sailing. The scarcity of gold that makes it such a sought-after commodity also means that it may never again hold the currency value that it possessed in the past. Many people also argue that gold has no intrinsic value that can be measured logically. More to the point, unlike stocks and bonds, if you invest in gold bullion you will not receive any dividends or interest. Additionally, gold bars or jewelry may look very beautiful, but if they are extremely valuable, they shouldn’t be kept in an unprotected jewelry box. Safe storage and insurance policies come at their own costs.

If you are considering owning gold as part of a diversification strategy, make sure you believe in its inherent value, and aren’t blinded by its shine. For those folks who invest in gold and silver coins, remember that you can lose money in the gold market.

About the Author: Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd, a financial planning firm located in Jerusalem. He specializes in working with clients in New York, Florida, and Israel and is a licensed financial professional both in the U.S. and Israel. Securities are offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, SIFMA. Accounts held at Pershing LLC., Member NYSE/SIPC, a subsidiary of The Bank of New York Mellon Corporation. Neither Profile nor PRG gives tax or legal advice. Before immigrating to Israel, it is advisable to consult with a tax attorney who is knowledgeable about Israeli law. Doug’s newest book The Expatriates’ Guide to Handling Money and Taxes is available at www.expatguidetomoney.com. He hosts a weekly finance show, Goldstein on Gelt, on internet radio. Listen live or download podcasts. Toll-free from U.S. 1-888-327-6179, Jerusalem: (02) 624-2788. Follow on Twitter: @DougGoldstein or contact at doug@profile-financial.com.


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2 Responses to “Who Told You to Buy Gold?”

  1. What could be possibly meant by "hard currency" in relation to gold?

  2. Thanks for your comment. Economists use the term “hard currency” when they are referring to strong currencies that are traded globally. The term is subjective since different people will have varying views of which currencies are more attractive as “safe-haven currencies” and which ones are more volatile. You’ll generally find that if a country has a strong financial and political structure, its currency would be considered “hard.” Hope this help. -Doug

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