A typical gold Kilo Bar, or 31.15 troy ounces, or at $1,621 an ounce, 52,116 US dollars. Nice, eh?
This is a guest post from BullionVault
Even after a decade-long bull market, many people look upon the idea of buying gold as a bit strange, almost like something from the past. We see advertisements and companies advertising “Buy Gold” arrangements, yet it is rarely explained what exactly the benefits of purchasing gold stock can actually be.
Indeed, those who do buy gold often trade it as they would any normal, publicly traded stock – seeing as the prices of gold rise and fall much like a regular stock. So, what exactly is the benefit of investing your money in actual gold? Well, it depends upon your personal preferences and style of investment – however, there are certain potential benefits that may intrigue you.
To begin with, there are companies, such as Bullion Vault, that allow you to buy and store “Good Delivery” gold (*) with extreme convenience and simplicity. You can conduct the entire process online, and can buy any amount of gold, at any time, and it will be stored securely in a top class vault somewhere in the world. Additionally, these companies offer very low rates for storing your investments and keeping them safe, with the result that you get most possible out of your investment when you do decide to withdraw your gains. This makes buying gold an extremely sensible and convenient way of, essentially, trading stock.
(*) note from 101C: Good Delivery is a quality term used by the LBMA, the London Bullion Market Association. It sets out basic size and purity specifications that a gold or silver bar must meet in a wholesale market: minimum fineness (.995), recommended dimensions, year of manufacture, manufacturer’s mark, etc. Remember the gold bar the character Zeus Carver used to bust out a car window in Die Hard With a Vengeance? That was a Good Delivery bar. More Die Hard trivia: all those supposed billions and billions of gold stolen from the Fed wouldn’t have fit that in those few trucks. That’s a typical Hollywood suspension of the real physical world. More trivia (or speculation): the gold stored at Fort Knox isn’t purported to be Good Delivery bars, as many were made from melted gold coins during the Roosevelt years. Gold coins, as we know, are often an alloy of gold and some copper.
Gold is also considered, by those who have begun to use it as an investment tool, to be a very safe place to put your money. In fact, some go as far as to call buying gold a type of insurance. It is certainly interesting to contrast money placed in gold with money placed in typical stocks, which can, and indeed almost always are, more volatile. While the prices and worth of gold do ebb and flow with time, they are not susceptible to emergencies or poor financial reports, etc. This means that while money you place in other investments may not be reliable if needed in the event of an emergency, any value that you place in gold can generally be relied upon. This makes gold investment a decent insurance policy in and of itself.
Ultimately, of course, investment strategies are tailored to fit individual needs . However, gold is one option that one should certainly keep in mind, only because many are inclined to automatically dismiss this resource as a odd sort of investment — a “barbarous relic”, as John Maynard Keynes is famously quoted. Conventional investments such as stocks and bond mutual funds or ETFs are and should be part of individual investment portfolios. But storing a part of one’s wealth in physical gold can be actually be a very sensible economic decision, and as noted above there are resources and services online that make these investments very simple and convenient.
Closing note from 101C: I might quibble a bit with the definition of “investment” for holding gold, inasmuch as holding cash is a type of investment. To me, precious metals are just a type of savings. Maybe that comes from having lived overseas and seeing how other peoples and nationalities regard a few gold pieces of jewelry or gold coins, as *savings*. Our small stash of physical gold and silver coins and gold jewelry is something we’ll hopefully never have to use, and probably pass on to our kids.
VERY interesting!I do always think of gold as an “old school” thing to do. Do people invest in silver too? I heard somewhere that all the money in the US is no longer backed by gold…does that make a difference?
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Sure, I personally hold a little silver as well, in the form of coins and ounce bars. Nixon took the US the gold standard in 1971, and since then the US Dollar has been backed by only the “full faith and credit” of the US Government.
Hey 101C….
another fine example as to why yours is consistently one of my very favorite sites.
I’ve been meaning to write a post on gold myself and touched on it here:http://jlcollinsnh.wordpress.com/2012/01/02/magic-beans/
I find the business model of companies like Bullion Vault very interesting. Let’s see, you send in your money to me to buy gold. I sell it to you AND I store it for you. You never have to see it. Mmmm. Maybe it’s just my larcenous mind, but boy howdy that seems a recipe for con-men. Not to say BV is anything other than a fine and honorable organization.
I also appreciate, and agree with, your point that gold is not an investment. I see it more as a potential store of wealth along the same lines as art, coins, stamps, antiques, Beanie Babies and the like.
The problem for me with all these is they have no productive potential. They are not businesses or properties that can grow and generate income streams. Rather they rely on a conscientious of buyers to determine their worth at any given time.
Further, they require storage and/or insurance to protect them and, typically, high commissions to buy and sell them.
Were I drawn to the benefits of holding gold — inflation/disaster hedge, asset diversification, potential capital appreciation —- I’d look more to silver, platinum and other metals that also enjoy broad industrial uses.
jlcollinsnh recently posted..Where in the world are you?
Hi JL – to your point that gold has no productive potential of growth and income streams, in these days of zero-interest rate policies by the Fed, neither does cash. And yet many investors (myself included) hold a portion of their portfolios in notional cash, a money-market account.
I don’t know if the accounts offered companies like BullionVault or GoldMoney are fully allocated or not, maybe an either/or deal. The Australian Perth Mint (which US citizens are not allowed by law to invest in), I believe offers both. Fully allocated Certificate accounts carry a storage fee, while unallocated “pool” accounts do not.
And for convoluted custody chains (and not really to defend BV) an ETF like the SPDR GLD is hard to beat. Between Trustees and Custodians and sub-custodians, it’s hard to tell where the gold actually is. Not that I wouldn’t trust the likes of Morgan Stanley, JP Morgan and Goldman Sachs, I’m sure they’re fine and honorable institutions.
I also hold cash waiting to be spent or deployed in in MM accounts at zero interest these days. Unlike gold I don’t pay hefty commissions to buy/sell.
Like Robert said, good luck getting your gold from some storage place if times turn tough. Plus they seem so ripe for fraud. great temptation, since odds are you’ll never be asked to deliver ALL the gold at one time, to sell what you don’t actually have.
finally, 101C, I’m shocked, shocked I tell you, that you don’t fully trust
Morgan Stanley, JP Morgan and Goldman Sachs et al. after all, if you can’t trust your banker who can you trust?
jlcollinsnh recently posted..Where in the world are you?
I would not consider gold as the only safe heaven, but I certainly consider gold as part of my investment. I think silver has as good potential to appreciate in the future. I always buy gold the old fashion way. Just buy and hold it for the long haul. You can’t go wrong.
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Hi Shilpan – looks like we’re on the same page here.
I don’t see any harm in holding physical gold as part of a diversified portfolio. Like you said, one hopes he doesn’t get to use them because it would really be THE last line of defense in terms of emergency funds!
BeatingTheIndex recently posted..Stock Trades: Bought TriOil Resources
Hi Mich – just another asset class…
I don’t think you want gold if it comes down to that. You’ll be better off with some farmland and a lot of ammo, or a cave somewhere.
FG recently posted..Ron Paul: The One True Hope for Change in 2012
Two more asset classes…
I go back and forth on the gold as a store of wealth. During times of political upheaval, gold tends to do better than inflation. But during times of growth and stability, gold tends to do worse.
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Hi CoM, I guess it depends on the time horizon. Compare what a silver quarter or 50-cent piece bought in the late fifties/early sixties, and what its intrinsic metal value buys today, and it’s about the same.
People hold gold because of fear of inflation or Armageddon. In inflationary times, stocks still outperform gold. If there was an destruction of the financial system, good luck getting your gold from some storage place!
Robert @ The College Investor recently posted..5 Signs You Have a Horrible Boss
Sure, I’d agree with that. Same would apply to stock and bonds and virtual cash like PayPal accounts.
But actively planning for Armageddon gets us into paranoid conspiracy la-la-land.
I like gold as a “FU” to the established financial order of things. I have no desire to see a return to a gold standard, but nor am I happy with the current top-down imposed standard. I want to see a move to free choice in money, and buying gold is a small part of my vote for that, by putting my money where my mouth is.
FG recently posted..Ron Paul: The One True Hope for Change in 2012
Agreed. A gold “standard” set by a central government is subject to the same type of abuse and debasement. Competition is a healthy state in free markets, why not in currencies? The likes of Bitcoin or Ithaca Hours or the American Open Currency Standard could compete head to head with monetary metals and fiat currencies, and let the people decide.
Speaking of gold, I’ve had good success with Patriot Gold.
They are a junior gold stock company based in Las Vegas, NV. According to their management, their goal is “to provide exceptional shareholder returns in a rising gold market, by focusing on high-value gold resources in the Americas.” They have had quite a few press releases this year on developments. Looks promising.
My prevailing problem with gold is this: how do you value it? Since so much of its demand is from investment or speculative interests, it’s really just a bet on whether or not other people will pay more for it.
I find it interesting that gold does keep pace with inflation over the long haul, but I don’t have that long to live!
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Hi JT – I suppose one could value gold against other hard commodities like oil and gas, or residential real estate.
Considering the amount of deficit-fueled money that’s printing going on, maybe it’s the case of valuing the US dollar against gold?
These days, I’m more interested in the silver to gold ratio.