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Sunday, July 22nd, 2018 - Buy Gold - Bringing you trusted gold news and gold investing information since 2006

Gold Will Glitter in the New Decade

From the earliest time, gold has been used for money as a relative standard for currency equivalents specific to economic regions or countries. Gold, like all precious metals, is a hedge against inflation, deflation or currency devaluation. When the return on investment is not adequately compensating for risk and inflation, then the demand for gold (and other commodities) increases. Jewelry accounts for over 70% of gold demand. India is the largest consuming country, accounting for 27% of demand, followed by China and the U.S. Central banks and official organizations hold about 20% of all above-ground gold as official gold reserves.

The price of gold has had a remarkable rise in recent times. After trading in a $300-400 range for 20 years, the price exploded in the last 10 years. It started the decade at less than $280 an ounce and ended at almost $1,400, equivalent to a 17½% compounded annual growth rate. During this same time span, stocks for many prominent companies did well if they achieved modest gains with small dividend yields.

In recent years the transfer of wealth geographically has fueled increasing demand for gold. Asia, in particular, with a majority of the world’s population (mostly in China and India) has benefited from global trade, where gold is appreciated as a growing investment and a store of wealth to guard against inflation and other financial disruptions.

There are many ways to invest in gold: By buying gold bars, coins, ETFs, certificates, mining companies and gold accounts. The easiest way for the investing public who understands stocks is to buy shares in a closed end. While many funds invest in gold, I like the SPDRGold Trust (GLD) managed by State Street Global Advisers (an arm of State Street Corporation). The objective of GLD is for the shares to reflect the performance of the price of gold bullion (less annual expenses of 0.4%). This is the most popular gold fund, but has been widely criticized, and even compared with mortgage-backed securities, due to features of its complex structure. What I like is its simple object, replicate movements in the price of gold.

Gold, like all other commodities, has high volatility in the short term. It’s routine to have 10% price swings. But long term investors will ride out these periods with the overriding thought that gold’s value will grow over time (as with growth stocks). It’s difficult to imagine that gold can grow another five-fold in this decade, which would take it to $7,000 in 2020. However, 10 years ago few could have imagined today’s prices. Objectives of 5-10% annual growth are probably more realistic, which would imply doubling to about $2,800 10 years from now. In addition, gold has high defensive qualities and provides protection from inflation caused by massive government deficits. A growing investment with significant defensive characteristics deserves more respect than it has received in the U.S. This site (goldprice.org) has more data on gold prices.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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