It is recognized by most people that there is financial insecurity, that investments in the stock market might lose half or more of their value. Banks may crash. No longer are there institutions “too big to fail.” It is even recognized that house prices may tumble, and that the value of an investment in a home can be wiped out.
In the span of forty years, the United States has morphed from having the world’s largest credit position to its current status of holding probably the world’s largest rapidly increasing debt ? in the five trillion dollar range.
So what is left? Is there any safe place to keep one’s wealth?
The term “safe” cannot in be used in an absolute sense, only on a relative scale, and it is here the prudent investor decides to minimize his exposure to risk, to reduce the risk to what he can afford to lose, and to maximize the security of what he cannot afford to lose.
One of the ways to do this is by spreading the risk into a number of channels, to refrain from putting all one’s eggs in a single basket, no matter how attractive that basket may seem. Holdings on the stock exchange should be diversified, there should be a balance between positions in cash, stocks, and bonds, and consideration should be given to precious metals, in particular, to investing in gold.
When to Start Investing in Gold
There are people in different situations around the world who hold virtually the entire family wealth by investing in gold. They may not have access to a bank, or may not trust the bankers of their country, and their wealth is worn by their wives on their arms and around their necks. There are other persons who do have access to reputable banks, but out of fear or other reasons, keep their wealth in gold coins in a hidden box.
For those who do trust their banks and investment systems, it is generally recommended that a portion of their wealth should always be represented by the value of precious metals. The size of that portion will vary with individual preferences and with the financial climate.
Because gold represents a measure of stability, it is most sought by the investor when the stock market is falling and least sought when it is climbing. For one who wishes to use gold as a safety feature to minimize the loss inevitable in declining markets, and all markets take their turn at declining, the investing skill comes in timing the market swing so the relative proportion of holdings in gold is the see-saw opposite of the holdings in stocks and bonds.
How to Begin Investing in Gold
There are a number of available vehicles and when investing in gold, the relative merits should be understood.
Gold jewellery, although intrinsically attractive, is the poorest investment if there is any considerable degree of mark-up for craftsmanship over the value by weight of the gold.
Gold coins are popular; the common selections are between the gold coins of the USA, Canada, South Africa and Austria. The dealer has a substantial mark-up when selling the coin and the purchaser learns the meaning of “spread” when he finds the same dealer will gives him less on buying it back.
For larger investments, there are exchange traded funds (ETFs) sold on the stock exchanges in the same manner as industrial stocks, and with a value closer to the “spot” price of gold bullion. Or the investor might like to invest in stocks of gold mining companies whose value tends to reflect the market value of bullion.