When it comes to intelligent investing, the investor must consider all the important aspects of the relevant sector. More and more people are attracted to investing in gold because of its profitability and durability. However, when markets crash the price fluctuate. There may be good or bad news. However, these are the must-know factors that everyone should understand before buying or selling gold.
Gold and Paper Gold
There is gold and then there comes paper gold. The gold price is set buy trading in derivative contracts in gold, contracts that are mostly not backed by the physical metal. When gold slumped on the 15th of April it said that about two months of the world’s production was sold into the market. This was not real gold but the promise to deliver gold or the equivalent in cash. When you buy a gold ETF or a gold share you are not buying gold you are buying a proxy for gold.
Two Schools of Thoughts on Inflation
There are two schools of thoughts that must be understood before you decide buying or selling your gold. One group, even majority, believes that we will get high inflation. Governments are printing vast amounts of cash it will result in price rise and a cycle of growing inflation. If you hold this belief, you should buy gold. If you are confused about any thought, this gold investment expert will be a great source to consult. On the other hand, banks were creating vast amounts of money during the credit boom and that vanished so in fact money supply may not be being increased; only replaced by QE. This could explain the lack of inflation in the official numbers. As such gold isn’t a great investment.
The Gold Standard
This is extremely sad to inform you guys that there will be no new gold standards. You will never ever see any new standards even if the world implodes. There is just not enough gold in the world to be used as a value backed money medium. If gold was turned into money it would end up being money as detached from real value as paper. Communists would love gold as money because if we went back to gold coins as cash, we simply wouldn’t have much money around and little economy to go with it.
Gold is Commodity
Gold supply has not kept up with demand so its price should rise. Where once gold was used on things that could be easily recycled. Now gold is used in things that don’t get recycled in a way that the gold is being recovered. So gold is being lost.
Gold is not a stable store of value
It is a myth to believe gold is a constant store of value. Like anything else the price of gold is created by supply and demand. When the Spanish pillaged South America and brought the gold and silver back Europe, there was rampant inflation. More gold meant gold money was worth less and the price of things in gold went up.