Gold. It is a commodity.
Gold has been hitting record highs in price (see price graph here). It’s all over the news. There even gold vending machines hitting the United States. See article: Gold vending ATMs coming to Las Vegas and Florida.
Why Do People Buy Gold?
There are numerous reasons people buy gold. Here are the main ones.
Safety and Security: People flock to gold during times of crisis (political, economic, war-realted). Gold has been one of the longest accepted forms of money in history. Gold is known as a “safe haven”.
Fears of Inflation: People buy gold when they don’t believe their paper currency will be worth as much. When bond yields are very low- and people are not being paid for the risk of inflation- they buy gold. For more read: What is Inflation?
Speculation: People buy gold because they think the price will go up for any number or reasons—increased demand from India’s middle class, supply constrains– or even just momentum.
Paper Currency Fears: As many nations begin printing money (what is this?) to help pay for things, that reduces the value of the paper currency you hold. During times like this people turn to gold as the world cannot simply print more gold.
Who Buys Gold
Individuals – usually through mutual funds, the Gold ETF (GLD) or coins. For more read: What is an ETF?
Central Banks- usually through gold bars
Ultra Wealthy Individuals- there was a recent article that world’s super rich have started buying gold bars themselves. See London Telegraph article here: Super Rich Buy Gold by the Ton.
How Do You Buy Gold?
Gold Bars: A traditional way to own gold. These can be bought and sold (with some mild degree of difficulty) at major banks. However, depending upon the size these can be extremely pricey. These are called: Bullion Gold Bars. You will also need to invest in either holding costs at a vault or a fire-proof save and incredible home security system.
Gold Coins: A common way to own gold. The most common coin is called the Krugerrand. Be careful of fake coins- get a good appraiser.
Exchanged Traded Funds- Gold ETFs are tied to the price of gold. One of the most popular Gold ETF’s is called GLD. While this allows investors to participate in the price change of gold (in a relatively hassle-free manner), ultimately you have just that. You are not able to take physical delivery of gold, even though this fund is technically backed by Gold. One of our readers shared with us this Forbes article which delves deeper into an investment in GLD: Is GLD Really As Good as Gold?
Should You Own It?
Typical portfolio allocations to Gold and or diversified commodities vary between 2%-6% on average. During times of inflationary fears or pressure, some say an increased Gold/Commodities exposure is warranted.
