Recently someone said to me that they were planning to buy some gold which many people talk about. But is it a good idea?
Well like many things in life there are good reasons and bad reasons for buying gold. So why is gold valuable?
For two reasons, firstly it is rare, if all of the gold ever mined was put into the middle of a football field, the type of football is unimportant, you could sit in the stands and look at it all. If you tried the same thing with Silver, it would fill to the brim multiple football fields. Secondly gold does not rust, which means that it's durable.
Until the Twentieth Century weddings rings were gold because they didn't rust and it symbolically meant eternity. But in times of trouble it had great value as gold rises in price during such times. So you can sell your wedding ring at a good price to help you through bad times, then when good times return and the price of gold goes down you could buy a new gold ring. Gold is a good, although imperfect, way to measure the health of the economy and of the international situation.
Which leads on to why you should buy gold, gold becomes more valuable in times of crisis and goes up in value. It's small and even shavings of gold can have value. It's also easy to hide and to carry and the worse things get the better it is to have.
However there are quite a few downsides to buying gold, as an investment, unlike nearly every other form of investment, it costs you money. You need to store and protect it. It does not earn investment and if times don't get worse you can lose money. A lot of money. And if you have gold how much is enough?
That is a very difficult question to answer.
However there is also another issue that I never hear people talk about when it comes to gold, what happens if the government decides to make the private ownership of gold illegal?
Now you might be thinking that that would be a pretty extreme situation and you would be right. But that exact thing happened a number of times in various countries during the Twentieth Century. Including in Britain and the United States. The private ownership of gold was illegal in Britain during both World Wars and it was illegal in the United States for 21 years, 1933-1954. Gold had to handed in for bonds or cash and you didn't get a choice about it.
Gold as part of a balanced portfolio is I think a good thing, but most investments should be in things that will provide a financial return. If your investing more than 10% of your portfolio in precious metals I think your doing yourself a financial disservice.
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