1. Hedge against inflation
2. Hedge against a collapse of the U.S. Dollar
3. Bull Market
5. Store of Value
Probably the number one reason why people are investing in gold today is due to a fear of inflation. Central Banks around the world have turned on the money spigots and began flooding banking markets around the world with liquidity. This has scared many people and rightfully so. Once all of this liquidity hits the hands of the people we are in for a serious bought of inflation, maybe even hyperinflation. I have read some statistics that have said that the Federal Reserve (which by the way is a private bank) had doubled the money supply in a year’s time. It will be difficult for the Fed to draw back in all of that liquidity. Although they want you to believe it will be easy for them. When inflation hits gold prices will continue to rise.
Some people are even more concerned that the U.S. dollar will not only hyper inflate, but that it will eventually collapse and become worthless paper. We have seen this happen many times throughout history, the most recent being Zimbabwe. Their currency was declared dead in April of 2009. Citizens of Zimbabwe began digging and panning for gold in order to scrape together enough grams of gold to be able to provide for their families. Gold goes a long way under these circumstances.
On a more positive note, gold can be played purely as speculation that the price will rise. We are in the middle of the 10th consecutive year of price appreciation. This is a strong bull market for gold, and many experts are calling for gold to reach $2,000 to $5,000 per ounce before the cycle ends. Therefore, putting money into gold now, if the experts are right, can be very lucrative.
Gold is always, first and foremost a portfolio diversifier. Gold typically performs better when stock, bonds, dollars and other paper assets do poorly. However there are times when gold does well in conjunction with paper assets, but typically gold and other precious metals will compliment your paper assets nicely, giving you appropriate diversification.
Gold has always been a store of value. For over 5,000 years gold has been coveted and treasured. Gold will never be worthless, while any paper asset can be rendered worthless under a variety of circumstances. Now gold can definitely decline in value but it will always be worth something. Governments and countries can collapse and companies can go bankrupt which would then render those respective paper assets worthless. Gold has no debt or any other encumbrance or decision maker attached to it other than you.
These times are proving to be the perfect time to own gold.