It was almost fifty years ago when the gold standard or gold-backed money was discarded. Since then, there have been efforts in some quarters of financial circles for the return to the gold-backed dollars. Gold-backed currency simply means that the paper money in circulation has an equivalent amount of gold held in reserve by the government.
Even without the gold currency standard, investing in gold has been a secure and lucrative practice. Of course, like all investments, the return on investment is not assured. Gold investment takes many forms. The two most common forms of gold investment is in actual ownership of the metal. Although the actually having gold bullion is illegal in most countries, you can still own gold properties in the form of jewelry, certificates and other forms of commodity trading. Alternatively, you can invest in gold mining firms.
Owning gold as a form of investment is a simple proposition. Using the simple tried and true concept of “buy low, sell high” you can buy gold coins, commemorative medallions, ingots or jewelry during times when gold is cheap. Another consideration when buying old items is the purity of the metal. If you want to invest in the metal, buying gold coins or bullions, you would need to be sure that the metal item on sale has at least 98% gold content.
Investing in gold coins is a fairly common practice. For some, there is more worth to the coin itself than to the gold content of the coin. In this instance, it works both ways. Gold coins can later on be sold as gold, or it can be sold to other coin collectors as a coin, with its own intrinsic value.
For companies which sell gold to consumers, the items usually come with a certificate as proof of purity, manufacture and ownership. Certificates are usually good for small items like coins, but for gold bullions, it is necessary to have these assayed to check for purity. Even then, there have been instances when the bullion can pass assay and yet contain other metals like lead or tungsten, diluting the purity.
One safe method of investing in gold is through the use of certificates of ownership. The investor buys gold without laying eyes or holding it. In essence, the gold is held in trust, in a secure bank. Trading in certificates ensures that the gold is kept in a secure place. The first paper money operated like gold certificates, being backed by gold with the paper currency as proof of solvency. Trading in certificates is allowed in the United States, as well as in Australia, Germany and in several other countries. The certificate itself is not just good as gold, but since it is a holding; you can check your gold value against current gold prices.
Investing in gold mining firms follows the same rules and risks as investing in other stocks and bonds. Like stocks in publicly traded companies, buying stocks in a gold mining firm is not directly buying gold. When you buy mining firm stocks, you become part owner of the company and your earnings from the investment come from stock and cash dividends. You can also earn from the investment when the stock price appreciates and you sell the stocks on the market.
As an investment instrument or a choice, gold in whatever form is a welcome part of any investment portfolio. There are several reasons why you should consider gold in your investment mix. First off, diversification. With a diverse basket of holdings, you insulate yourself from adverse market conditions.
The second reason is related to the above. Gold usually appreciates when economies take a downturn. Because paper money loses some of its value during a recession, more people and companies buy gold for investment purposes.
Lastly, gold has proven to be a resilient holding. Even in the best of times, it has held up well compared to the dollar, and in the worst of times, it appreciates better than other financial instruments.