All that Glitters is Gold… Well Until the Bubble

by Guest

NBP Gold

With all the bad news about the economy floating and debt crisis, the positive news is about the gold prices rising. As always this will make sure that those investors who were sitting on fence wondering whether to buy gold or not will be doing so. That is true for other commodities like silver and platinum. They should be part of the well diversified portfolio and gold alone should be your holding in the portfolio.

Gold as an Insurance Policy

The real question is as to why owning gold is so important. I think it is important to understand what gold will provide you as that will then define the kind of investment you want to make. If you are thinking of buying gold to generate returns then you are wrong. Gold should be like your insurance policy which means that if the economic crisis happens or if the dollar value is totally decimated or if then at least you will have gold to fall back on. Gold will serve as a hedge against anything that is too much of inflation or deflation. You should not be investing if you are trying to buy gold at current prices and then sell after a few years and reap the gains. There are other best investments to do that and make good money.

Given the political climate as well the world’s political landscape gold is your hedge against anything which go wrong in the political climate. Better still its value will never be zero and that in itself is a big think.

Gold Bubble

Well Warren Buffet views on gold are very clear that since the asset as such does not produce anything, hence it is worthless for him and he may instead buy a farm or a stock that is income generating. True for sure that gold prices have gone so high that someday someone will not be willing to pay that high a price for a hedge against inflation and the bubble will burst. Again that goes back to the question that why are you buying gold? If it is for that safe haven against everything bad then go for it irrespective of the price. Buy again when the gold price is a lot less and keep it for yourself and generations to come and hopefully never have that need to sell.

How to Buy

The question then is who to buy gold and here are some of the most common avenues which are gold coins and gold bullion. If you are not one of those who want to have physical gold then go one of the best gold etf out there in the market like SPDR Gold Trust ETF (GLD).

This is a guest post by John Border. He is an economist and a banker who also authors a blog where he teaches stock market basics for beginners.

photo: Some rights reserved by covilha

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{ 1 comment }

Maggie@SquarePennies August 26, 2011 at 8:46 pm

I still don’t see how a person comes out ahead unless the entire currency collapses. But then if you wanted to cash in your gold you’d need a body guard or two to protect you on your way to & from the place you want to sell to. Not to mention how bad it would be if people found out you had gold in your house. I’d think it’d be better to just buy gold wedding rings. That way you would have smaller amounts to cash in with less fanfare.

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