Gold is Money Gold is the only commodity produced for accumulation of wealth. All other commodities are produced to be consumed by industry. Coal for example is widely used in the production of energy. Gold, on the other hand, is not consumed, but stockpiled. It is this tendency to hoard gold rather than consume it that makes gold a store of value. Gold is money. Money has three consistent characteristics. It is a medium of exchange, a store of value, and a unit of account. Gold has performed all three functions reliably for thousands of years. Paper money, on the other hand has proven to be very unreliable throughout the ages. Paper money is a bad store of wealth due to the fact that central banks around the world print too much of it. And the more money that gets printed, the less value it holds. Gold holds its value through political unrest and economic turmoil. These are events that often devalue paper money. In terms of purchasing power, gold can sustain its purchasing power over very long periods of time. It has after all been used as a currency for thousands of years. The reason that gold is more effective as a store of wealth is because it is a tangible asset and not someones liability written down in a book or stored on a computer system. It actually exists. And it shines. Gold is also not restricted by borders, its value is accepted the world over. Gold as an Investment Diversifying risk is key to any successful investment portfolio. Gold shows a low or negative correlation to most stocks and bonds. This is because people turn to gold as a safe haven when they perceive other investments to be too risky. Including gold in a portfolio of stocks, bonds and currencies greatly reduces the overall risk of the portfolio by decreasing volatility. Studies by investment professionals have shown that portfolio performance can be enhanced with a 10% gold allocation. Including gold in a portfolio is prudent and should always be considered. Gold helps protect an investment portfolio against a great number of possible economic conditions. |
