Not since the late Nineties have investors and speculators had an eye on real estate. Since the collapse of the housing market, followed by floundering big banks and a Western economic “downturn” which has become a global one, it seems as though gold is the one safe investment harbour. You can buy bars and coins of it, and even host a Tupperware-style party to sell your unwanted gold jewellery.

The reason for the excitement is that, when all else seems uncertain, gold begins to look very safe. There’s a limited amount of it around and, unlike shares in a company that can go bust, a precious metal is a tangible, ownable thing. It’s no surprise that the price of gold has soared since early 2006, while stock markets have lost value.

Gold’s current price is $1,239 per troy ounce (just over 30 grams), compared with about $550 in 2006.

The rise isn’t being driven by a higher demand for jewellery or the use of the metal in industrial processes. Instead, gold is being bought by investors, and by funds which are then bought by investors. It is tempting to jump on the golden bandwagon with them, but investing in gold at this high level carries some risks.

Investment advisors are split as to whether or not to invest in gold at this time. The bottom line is simply whether one believes that gold has peaked or whether it still has room to climb. Current economic turbulence as well as demand by emerging markets (such as China and India) lends some weight to the view that gold will continue to grow, at least in the near term.

If you’ve been tempted by the glister of gold, here are some nuggets to consider before you buy.

Gold provides no income

Gold pays no income, interest or dividends, meaning that you are relying solely on capital growth, so you could end up losing money. If gold had simply kept pace with inflation since the early Eighties, today it would sell for $2,400 an ounce. It doesn’t, of course, meaning that you would have lost out if you’d bought it then.

Buying gold exposes you to dollar weakness

Because gold is priced in dollars, investors who buy it in Canadian or other currencies can fall victim to currency fluctuations. For example, if you bought gold six months ago, any gains you made would have been more than wiped out by the weakness of the dollar.

Gold could fall fast

It has become far easier to invest in gold, but this has a downside. These funds are easy to buy but they are easy and quick to sell as well.

If gold still seems attractive, there are a variety of ways to hold it.

We’ll look at these in a follow-up article.

One comment

  1. Useful stuff, thanx for getting this aired. I’d say you got the point.

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