Top Five Reasons for Buying Gold Coins

In the third week of May 2011, the world’s largest bond-investment group, Pacific Investment Management Company, LLC (PIMCO), started buying gold for investors in its new $1.2 billion stock-market fund. Anne Gudefin, co-manager of the EqS Pathfinder at PIMCO, said, "The largest position in the fund is gold." In an interview with Fortune magazine she added, “We think buying gold is a very good form of protection against what can go wrong." She said further, "We were encouraged to buy gold by the fact that a lot of the central banks, especially in Asia, are big buyers. We think that’s an underlying trend that’s very favorable for gold."

Reasons for Buying Gold Coins

There are various reasons for which people consider buying gold coins. Here are the most common ones:

Protection Against Inflation

Inflation destroys the value of an individual’s personal wealth. This is because inflation reduces the value or worth of a dollar. For instance, an individual is able to buy a loaf of bread for one dollar. However, in the subsequent month, due to inflation, the loaf of bread costs a dollar and 20 cents. This situation translates to the worth of a dollar having declined, as it cannot buy the loaf of bread that it could have in the previous month. However, when there is inflation in the economy, the value of gold tends to rise.

Protection Against Sudden Market Fluctuations

People prefer to invest a significant proportion of their wealth in some form of retirement savings plan. While investing for the future is a good idea, our funds are vulnerable to market fluctuations. This is something that is beyond our control. For instance, during the 2008-2009 financial crisis, millions of people lost a large portion of their savings, as the economy slumped and the stock market crashed. However, gold prices are not adversely impacted by factors such as economic slowdown or stock market fluctuations. In fact, during most downturns, people consider buying gold coins and other gold investments and gold prices gain an upward momentum.

Real Physical Asset

As an asset, gold is independent of countries, governments, currencies or creditworthiness. Most countries, governments and investors are willing to readily convert gold into cash at any point in time.

Gold Cannot Be Debased

Sometimes the government makes certain decisions that can lead to the debasement of your money. During certain political upheavals, the value of the country’s currency has plummeted overnight. There have also been instances of private companies that manage retirement plans going bankrupt, resulting in a sudden drop in the value of a person’s retirement savings. These instances do not impact the value of gold, which can be sold in other countries and to other investors. This is one of the main reasons that people buying gold coins cite for their decision to acquire the precious metal.

A Way to Store Wealth

Gold coins and bars have been used for centuries as a way to store wealth. This is because a large number of gold coins, worth thousands of dollars, can be stored in a very small space. This makes it easier to store and transport them.

Buying gold coins has become easier with the increasing popularity of the Internet and numerous ways in which online payments have been made secure. Jim Cramer said during his Mad Money show on May 16, 2011, “Buying gold is not only the best play on market negativity today, it is your insurance against economic chaos and inflation.” While citing reasons for buying gold, Cramer said that the yellow metal was expected to climb to $2,000 an ounce.