Gold as an Investment

From ArticleWorld

Gold has been regarded as a form of money and wealth for ore than four thousand years. It was used for a number of reasons including its rarity, luminosity, malleability, and resistance to tarnish. Though it has lost its dominant role after the collapse of the gold standard it is still considered by many central banks as a store of value in times of crisis. Gold like other precious metals are unique assets as they have real value and liquidity because it can be easily sold unlike property which is real but not liquid. It does maintain a special position in the market with many tax regimes. For example, in the UK the trading of gold is free of VAT. Modern day investors in gold may invest in gold for several reasons like speculation by believing that they will make a profit from a rapid change in price. The investor may believe that certain events may occur and that they may have a negative influence on the value of other investments, but there would be the opposite effect on the value of gold. Many asset allocators are beginning to reintroduce the inclusion of gold in portfolios though it has largely been abandoned since the 1980s.

It is believed that portfolios which contain gold are better able to withstand market surprises than those which don't. Some recent independent studies suggest that even a small allocation of gold to a portfolio significantly improves its performance during unstable periods. Some people believe even hope for Armageddon or the total collapse of the monetary system, and that by holding gold they would survive and prosper.

For centuries, investors have been known to buy gold to protect themselves against a rise in inflation and a decline in the value of money, particularly paper money. Currency speculators believe that the dollar will decline may buy gold. They think that if the Dollar declines, the gold price would remain constant as compared to other currencies. Many currency traders treat gold as a global currency, along with U.S. dollar, Japanese yen and European euro. On the other hand some investors respect gold as a long term store of value, and maintain their purchasing power. By buying gold and hanging on for the long term, they believe they can keep their wealth intact.