Why Invest in Gold?

Precious metals remain the ultimate safe-haven assets and gold is the precious metal and universal currency par excellence.

Unlike paper investments such as bonds and equities whose value is dependent on the performance of governments, corporations and the global economy, gold is a hard, tangible, very limited in supply asset whose value is intrinsic to nature.

Many investments, including that other hard, tangible asset property, are increasingly speculative in nature and based on huge levels of debt. Stocks & property in the western world have appreciated massively in value in the last 27 years.

Gold on the other hand has been in a bear market since 1980 when it hit $887 per ounce. It bottomed in April ’01 at $254 per ounce and has been steadily appreciating ever. Many commodity and currency analysts believe that gold will surpass it’s 1980 highs of $887 per ounce ( some $2,400 adjusted for inflation) in the coming years as oil and other commodities have already done.

Gold’s value is intrinsic and it is thus one of the few assets that represents no bank, financial institution, multinational corporation or government’s liability or ability to repay. Thus owning gold helps eliminate third party and counter party financial risk. This is particularly important when there are liquidity crises, credit crunches and global systemic crises.

Gold is the ultimate insurance against economic and financial difficulties. One purchases health insurance for one’s family and oneself not in anticipation of severe health problems but simply in case of that eventuality. Similarly one should invest in or save in gold not in anticipation of economic or financial difficulties but simply in case of them. When we buy home insurance or car insurance we are acting out the old proverb of "hoping for the best and preparing for the worst", similarly gold is not the preserve of doom and gloom merchants rather prudent individuals who hope to protect, preserve and grow what wealth they have been fortunate enough to gain through their hard work and or financial acumen. One does this through diversifying it into the safest asset known to man – gold.

While gold has taken a secondary role to stocks, bonds and property in the last 20 years, an unprecedented era of prosperity for many in the developed world, many astute financial analysts recommend that between 5% and 20% of every investor’s portfolio should consist of the ultimate of hard assets – gold.

The price of gold has an inverse correlation to the traditional asset classes over the long term. This gives balance and protection in a world that is changing quickly environmentally, economically and geopolitically. Over the long run, gold has maintained an excellent track record in maintaining its purchasing power relative to and outperforming other financial assets. It is the only asset that is not someone else’s liability and remains the ultimate safe haven asset.

More on Gold

Gold has occupied a special place in the hearts and minds of people the world for thousands of years. Gold is deeply embedded in the consciousness of all societies in the world. Consider the frequency with which the word gold is used to signify superiority or excellence – go for gold, a gold card, a golden era, a golden handshake or parachute, the golden mean, a golden rule, a golden age, a heart of gold and the gold standard.

From Aristotle to Voltaire to George Bernard Shaw to Alan Greenspan, wise men have always appreciated gold and it’s natural and distinctive qualities. Their thoughts help enlighten why one should save or invest in gold.

"In effect, there is nothing inherently wrong with fiat money, provided we get perfect authority and god-like intelligence for kings."
Aristotle, Greek philosopher and genius (384-322BC)

"Paper money goes down to its intrinsic value – zero."
Voltaire, French poet, historian & philosopher (1694 – 1778)

"You have to choose [as a voter] between trusting to the natural stability of gold or the natural stability and intelligence of the government. And with due respect to these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold."

George Bernard Shaw, Irish dramatist, theorist & philosopher (1856-1950)

" . . . .gold and economic freedom are inseparable. . . . . . . . Deficit spending is simply a scheme for the "hidden" confiscation of wealth. Gold stands in the way of that insidious process."

Alan Greenspan, Essay – ‘Gold & Economic Freedom’

The symbol of kings and the treasure of nations, desired by all but possessed by few, gold has been cherished for all of recorded history. In the 5th century B.C., Aristotle pondered the question of the perfect medium for money.

Aristotle concluded that gold is perfect money for 5 reasons:

Durability:

Gold won’t rot, break, crumble, decay, corrode or tarnish. Gold is unaffected by air, water, and even most acids. It cannot be debased or over printed like paper money.

Convenience and Portability:

A lifetime of wealth could fit in your pockets.

Divisibility:

Gold can easily be divided into smaller amounts. An ounce of gold can be split 100 or even 1000 times.

Consistency:

One ounce of pure gold is exactly the same as any other ounce, enabling worldwide trade and liquidity of gold? unlike unique items of jewelry or artwork.

Demand:

Gold has a staggering variety of uses, even more today than in Aristotle’s time. Its finite nature and unique properties keep the demand high and the scarcity of the metal insures continued value.
"Governments lie; bankers lie; even auditors sometimes lie: gold tells the truth."

More recently, Lord Rees Mogg, the economist & former editor of The Times (UK) & assistant editor of The Sunday Times (UK) said this quote. Recent years have seen the emergence of massive accounting corruption and corporate fraud as witnessed dramatically with Enron, Worldcom and Parmalat. More recently Refco, the largest commodities brokerage in the world collapsed and the hedge fund Amaranth collapsed after losing roughly US$6 billion in a single week becoming the largest hedge fund collapse in history.

Many astute economists have warned that the US government is now using an accounting system that would be illegal for any large international corporation. The Government Accountability Office (GAO) cannot certify the books of the Pentagon, the Department of Homeland Security, the Energy Department and NASA. The federal government has failed its annual audit for nine years in a row. David Walker, the US Comptroller General or US Auditor in Chief has warned that the US faces economic disaster unless these issues are tackled by politicians.

Gold is the precious metal par excellence and remains the ultimate safe haven asset.

Mark OByrne

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