Pros & Cons Of Investing In Gold

There has been a lot of noise in the news lately about investing in gold, but very few credible sources are giving an unbiased look at the topic. Sure, the low price per troy ounce now make the precious metal extremely attractive to new investors, but like any investment, there are pros and cons to buying gold. In this article we’ll try to go over some important elements:

The Pros

1. The value of gold has never reached zero. Over the one hundred and sixty years that the price of gold has been tracked in America (it has been tracked longer in other countries), the price for the commodity has never reached zero. This means that there has always been someone willing to pay something for the metal. In other words, no one has ever lost their entire initial capital investment by buying gold.

2. Unlike other investments, it is possible to hold gold forever. Throughout history, gold has been used as a common currency between nations. It is relatively easy to determine it’s quality, and it is next to impossible to completely destroy. Essentially, this means that the gold an investor purchases today has the potential to last for centuries. This makes it different from stocks and bonds that are tied to a company that could go bankrupt, government bonds that require a government to recognize their worth, or even other commodities that have the potential to spoil and become useless. Gold is an investment that can be passed to future generations without the worry that they will inherit something that is worthless.

3. Many analysts believe the price of gold will continue to rise. Many economists such as Peter Schiff have published and publicly stated that they believe the market conditions are in place for gold to continue to increase in value. While exact opinions vary, many of these economists cite the instability in many world governments as driving up demand, as well as the falling value of many currencies and a general trend away from investing in stocks and low-yielding CDs.   4. For those interested in investing for their future, it is now possible to buy gold as part of one’s retirement investment strategy. Opening a Gold IRA has become a good strategy to balance & diversify one’s overall IRA investment portfolio.

The Cons

1. Gold can lose value. While it has never actually reached zero as we mentioned before, there have been several times where it has come close. In 1999, for example, it hit a low point of $252.90 an ounce. When compared to the nearly $1600 an ounce that gold recently was valued at, it’s possible to see how an investor could lose a lot of money simply by buying and selling at the wrong time.    2. This investment has a lot of price fluctuations. While many world governments used to tie their currency to gold, this hasn’t been the case in the United States since 1975. Essentially, this commodity is left to rise and fall in the free market. Furthermore, there are only a few industrial uses for gold, and only ten percent of it is used by (and can therefore be influenced by) industries. The remaining ninety percent is divided between jewelry and investment. That means that there can be wild price swings in the price of gold that are not related to what is going on in the rest of the market. In fact, history shows that the price of gold reacts more to governmental conditions than it does to economic trends.
3. Many analysts believe the price of gold is about to fall. While there are a lot of economists who continue to state the price of gold will continue to rise, there are a growing number who believe that it is due for a crash or price correction. These economists cite the record high prices that gold is already selling for, the stabilization of major world economies, and the fact that many world governments are indicating that they will raise interest rates, essentially creating more stable opportunities for investors to earn a profit.

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Larry Banks is a retired weath advisor that has specialized in precious metals investing. He has helped hundreds of Americans make smart decisions by including gold & silver as part of their long-term investment strategy.