Precious metal investments: news, consultancy, trends, reports & more!
HomeMarket WatchHard AssetsInvestor's GuideDownloads

Gold: Investment, Hedge or Means to Save?

Some firms promote their products as investment vehicles that will later generate profits.

Others believe gold is not a good investment vehicle for generating profits, but is rather a hedge against currency devaluation.

The third way of looking at it is for the sake of saving, preserving wealth for the long term.

Obviously, gold serves all purposes, but it's inclined more towards the saving and hedging functions.

The difference between investing for profits, preventing value depreciation and merely saving wealth is rather large.

We'll get into all of them below...

Gold as Investment

When we talk about investments, we're focusing on ROI (return-on-investment) and profits.

The money you put into gold has to return to you, plus: you'll want to earn profits on top as well.

Gold experts like Mike Maloney, Marc Faber, Eric Sprott are strong believers that gold is still undervalued and fiat money will eventually devalue, while the "king of metals" will gain more value.

Gold has indeed outperformed other assets in the past, so there are solid reasons to believe this will happen again.

For example: those who invested in gold in the very early 2000's, would have earned profits in excess of 80-85 %, should they have cashed out at the peak in 2011.

You can read more about Gold's decade-long bull market, which brought the metal to staggering heights.

All you had to do correctly was when to get in and when to leave the market.

Another notable example is the 1976 gold scenario, when the metal's price crashed more than 40 %, only to skyrocket to a height of 800 % later.

The difficult aspect of investing is indeed the timing. You must know when to enter and when to get out.

If you are looking at gold as an investment asset for generating profits, then you will have sell it eventually.

Gold can then be an investment asset, can potentially act as a hedge against inflation, but it will not be a means to save.

If you regard gold as an investment, you must stay alert and be up-to-date with the price, preferably on a weekly basis, at least.

If you intend to generate profit through gold, then your require far more education and up-to-date information in than those who only use the gold as a protective hedge against currency devaluation or use it to save for "rainy days".

Gold as a Hedge Against Currency Devaluation

During recent years, many have recognized gold as a means to protect against currency devaluation.

Following the 2008 crisis, many turned to the shiny yellow metal to protect their wealth, which boosted gold's price.

Among the strong believers of gold as an ideal hedge are experts: Marc Faber, Jim Rickards, Peter Schiff, Mike Maloney and Jim Rogers.

Your savings in currencies are safe until they preserve value, but it's also desirable for them to produce some sort of revenue.
Although, interest rates on the primary currencies (such as USD, EUR) are rather low, many people still keep their savings at the bank.

Monetary easing is being carried out in the EU, in the USA, in Japan and other countries as well (including Australia, China and Brazil), which erodes the value of the currencies, by creating inflation.

The effects of the easing are not felt instantaneously, but with some delay, there will be negative consequences.

The fear of hyperinflation may be exaggerated in case of some countries, but it is a real threat for those living in the United States (considering the high debt, the weak productivity rate, the amount of easing that has already been carried out through the QE rounds).
Gradual erosion of money does indeed happen, because every healthy national economy that's producing growth requires at least a little inflation.

Interests at the banks barely cover the inflation, let alone generating profits.

If you consider gold a hedge against currency devaluation, then you must do your best to buy gold when it's at the cheapest level and hold it for the longer term, regardless of the metal's intermediary price oscillations.

Also: watch gold's price in multiple currencies.

Should it drop in one currency, it can still rise in another (which will have lost in comparison to gold).

While gold's 2013 correction has disappointed many in the EU, Australia and the USA, at the same time, people living in crisis-hit Ukraine and Argentina and Japan (who started easing wildly) found a refuge in gold.

In the Ukraine, Japan and Argentina, gold's price either hasn't crashed as much or has recovered and started growing.

Gold doesn't have a single price. The mere concept of "material value" or "worth" is an issue of perspectives - the price of gold appears in relation to some other asset. Let it be US dollar or anything else.

Gold as a Means to Save

In this 3rd situation, you're putting away gold for darker days.

Some are saving, because they perceive gold as a good hedge against currency devaluation, others want to preserve their wealth for later years.

Gold is excellent for saving pension funds. Instead of putting all of your pension into fiat money, you should consider saving some in gold.

Read about storing wealth in physical gold for more details about the efficiency of the shiny yellow metal.

If you consider gold as a means to save, then it's not an investment. Don't feel disappointed when seeing price corrections, crashes.

Even if gold's price crashes, you should hold your investment for a longer period of time. Losing faith due to a price drop will compromise your real goal.

If you're using gold to save, then we could say, it's a long-term investment.
You'll be interested in its price many years later (e.g. 10, 20, even 50 years later).

In the very long run, gold will win over fiat currencies, as it will have preserved wealth much better than the latter.

No fiat currency has survived and maintained its strength in the long run. Their value decays gradually.

10 years is a long time for a fiat money to preserve wealth. In 25, 50 years, the currency will erode your wealth.

Naturally, currencies require slight inflation - as a result of economic growth. But, if monetary easing also occurs, the value will decay the currency's value even more.

Think about gold: if you discover a treasure chest buried 500 years ago, its gold content will have preserved its value until today. It will not be worthless.

In 1960 you could have bought a good new car for 100 US dollars. But what would those 100 dollars get you 50-60 years later?
You could barely be able to feed yourself for a week!

Another aspect that many fear are gold price oscillations. These are a natural process.

They will even out in the long run.

If you want to save for 10 years, that's all right, but perhaps you'd want to save for your elderly years.

By the time you reach your pension years, you will have stockpiled a significant amount of the shiny yellow metal, which will have won the battle against currency devaluation.

The vast majority of precious metal stackers are in fact considering gold as a means to save and preserve wealth.

comments powered by Disqus

Prime Values on FacebookPrime Values on Twitter

about us    terms of use    privacy policy    disclaimer    partners    advertising    contact us