Gold prices have shot sky-high, hitting a record of $1030 per barrel last spring.Investors are rethinking the view of gold as anultra-speculative investment in these economic times.Buying gold to back up your retirement portfolio might be a great way to hedge against a recession, especially if inflation continues onward.
Gold has remained the medium exchange for thousands of years.Since the beginning of time, gold has remained the ultimate in wealth, as its value has remained stable against inflation.Its heavy weight makes it a convenient way to store large volumes of cash in a safe and inflation-proof investment.Until 1971, the United States maintained a gold standard that allowed dollar holders to convert their dollars into gold.For thousands of years in the past and well into the future, gold will always remain the statement of wealth.
Volatility and Price Changes
Gold is a very volatile metal, and its inflation tracking abilities only exist in the long term.If you look at any gold chart, you’ll see that the price can easily move 4-5% in just one day of trading.Obviously, the inflation rate does not change this quickly; however, over the long term, the short-term volatility of gold evens out, and the precious metal moves according to price changes in every other commodity.This is the most important thing to remember when buying gold.
Is Gold Topping?
Looking at gold prices, you could come to the conclusion that gold is topping; however, inflation has never remained stagnant.Inflation will always exist as a result of the banking system and government spending.While gold could be at a short term high, buying into gold is simply betting that inflation will continue – and there is no reason to believe that inflation is a trend of the past.Since the creation of the Federal Reserve in 1913, the dollar has lost 96% of its value, which means gold has increased 25-fold.
For every ounce of gold in circulation, there is a way to buy it.Many investors choose to take delivery of gold coins and bars as a way to protect wealth, taking comfort in always having a certain amount of wealth in hand that can be used to spend on virtually anything.Other, and arguably less paranoid, investors choose to buy gold mining companies on the stock exchange or gold ETFs (GLD) to get exposure to gold prices without actually storing the gold themselves.
How Much Should I Buy?
When buying gold, this is always the most difficult question to answer. The key is to have enough holdings in gold to hedge against inflation and the possibility of a once-in-a-lifetime economic failure. Many investors opt to invest 5-10% of their portfolio value to provide them with a hedge against an economic disaster.