Gold is Real Money
There is a large number of people who still invest in gold and coins. Investing in physical gold and silver is vital. It is also vital for an IRA, 401k, or SEP owner (or any other type of retirement vehicle) to have part of his savings invested in a gold IRA, to protect himself from the expected financial crisis. This way the savings of a lifetime will not perish overnight.
Content
- Gold History
- Gold as a metal
- Gold in Jewelry
- Gold as an investment
- Gold and the markets
- Gold IRA retirement fund
- Taxation
- Conclusion
Gold is the king of metals, and apart from that, there are many reasons for people to invest in gold. People all around the world are fascinated with the yellow metal. Gold is the number one metal used in jewelry. Gold is also the metal held in large numbers by all central banks. In many countries is better to own gold rather than the local currency.
Gold History
No natural process would allow the creation of gold on earth. In fact, almost all of the gold on earth was created by the supernova that produced all the heavy elements, heavier than iron. This is one of the facts that makes gold unique.
There are records dating the discovery of gold back to 3100 B.C. The Egyptians, Aztecs, and Indians used to worship gold. Ancient Greeks and Romans used it to cut coins. Later on, the possession of gold became a sign of wealth and high status in the society of many cultures. More recently modern societies have constrained its use to main jewelry. Gold is mixed with other metals and is turned into rings, bracelets, and even teeth. However gold never lost its real value.
Gold as a Metal
As a metal gold is ductile. With the right processing, gold can be turned into thin sheets or thin wire. Another attribute is its rarity. In a ‘good’ goldmine the amount of rock and mud that needs to be removed and cleared is at least ten tonnes before we can extract only one ounce of the precious metal. ‘Good’ mines are not so common.
In addition, gold never rusts and it always keeps its weight, no matter what. In reality, gold is eternal. It is unbreakable and it never loses its ability to shine.
Gold is not inexhaustible. Many mines close but new mines are fewer. On the other hand, industrial demand for gold is on the increase, especially in technology; computers have gold and so do mobile phones and many other electrical appliances.
Gold in Jewelry
If you believe that, because you possess a lot of gold jewelry, you own a small fortune, then you are wrong. In jewel manufacturing the amount of gold is small. The purity of gold is measured in carats. The purest amount of gold you can find is 24 carats. However, in jewelry 14 or 18 carats is common. Bear in mind a low amount of gold in jewelry does not mean that it is not good enough, as gold in its purest form (24 carats) could bend or deform quite easily.
Gold as an Investment
Of all precious metals, gold has been the most popular as an investment. Although the gold market is also subject to speculation and volatility as are other markets, investors invest in gold to diversify and reduce risk. They do this mainly by putting money into futures, contracts, and derivatives because gold has been shown to be mainly a hedge against inflation and economic uncertainty.
Every time there has been political and economic instability, gold has been called upon to save the day. When a paper currency loses its value and global inflation starts rising, gold offers security and acts as a safe haven for investors.
Ordinary people invest in gold, investors invest in gold, banks invest in gold, governments invest in gold, and even countries invest in gold. Recently countries such as Russia and China have been buying large quantities of precious metals.
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Gold And The Markets
There are many factors influencing the price of gold such as supply and demand. However, in gold, unlike most other commodities, retention, and availability rather than consumption play a larger role in affecting the price. It’s worth considering that most of the gold ever mined still exists in an accessible form, such as bullion and mass-produced jewelry. The investor Warren Buffet has said that the amount of gold (above ground) that exists today could fit into a cube with sides of just twenty meters.
Central banks and the IMF also play an important role in the gold price. At the end of 2004 central banks and other organizations held almost 20% of all above-ground gold reserves. The ten-year Washington Agreement on Gold, (WAG September 1999) limited gold sales by its members. (Europe, USA, Japan, Australia, Bank of International Settlements, and the IMF). In 2009 the agreement was extended for another five years. Although the tendency in recent years is for the central banks to sell their gold reserves, nowadays the opposite is true, with the central banks of China and Russia leading the way. It is also accepted that the price of gold is closely related to interest rates. As interest rates rise, the tendency is for the gold price to fall, and as interest rates fall, the gold price rises.
Industrial demand and jewelry account for over 75% of annual gold demand. India is the largest jewelry consumer followed by China and the US. Gold is also used in industry (mobile phones, dental uses, etc.)
The price of gold is also affected by gold jewelry recycling, as many people hand over their jewelry for cash. As a result, the gold recycling industry has become a multi-million dollar business. Unfortunately, there have been many companies caught taking advantage of their customers, paying only a fraction of what the gold is really worth.
Gold IRA Retirement Fund
A gold IRA is an individual retirement account, an account that functions the same way as a regular IRA account however, instead of holding paper assets, it holds physical bullion coins or bars.
After the 2008 financial crisis which brought a recession, markets became interested in gold IRAs. During that time the stock market lost almost 50% of its value and real estate followed. In fact, everything lost value, except gold and other precious metals. (silver, platinum, palladium).
That loss was reflected in people’s retirement accounts. In most cases, lifetime savings disappear in a very short time.
On the contrary, gold and all other precious metals moved in the opposite direction. In addition, the yellow metal had significant gains in contrast with the market as a whole. Gold again lived up to its name as a hedge against market turmoil and hard times.
As a result, gold IRAs became popular because investors wanted to:
- Protect their savings in case of bad economic and world news.
- Protect their savings from geopolitical tensions (Middle East, ISIS, North Korea, IRAN, the COVID-19-caused crisis).
- The US-China and US-EC trade war.
- Gold is a tangible asset that can be converted into cash easily, unlike CDs and Bonds.
- Protect their savings from inflation.
- The increase in gold demand for industrial use.
- Loss of confidence in governments and central bankers.
- Gold has never lost its value for mismanagement, corruption, theft, war, etc. Stocks have.
Nowadays, all investors include gold in their portfolios because gold is the best way to diversify and safeguard their savings.
Gold And Politics
National emergencies, geopolitical uncertainty, and war always cause the price of gold to rise. When the value of currencies was linked to the value of gold held by a country’s central bank, gold could actually be used as a currency. During times of turmoil, people feared their banks would fail and lose their money due to bank runs, hence people would run to their banks to convert banknotes into gold coins. This happened in the US during the Great Depression forcing President Roosevelt to impose a national emergency outlawing the “hoarding of gold” by US citizens.
Taxation
In many tax regimes, gold maintains a special position. For example, in the European Union, the trading of gold coins and bullion products is free of VAT. Other taxes such as capital gains tax, may also differ from country to country. US citizens may be taxed on their gold profits depending on the investment vehicle used.
Conclusion
Investors at all levels of experience are attracted to gold as a solid, tangible, and long-term store of value that historically has moved independently from other assets.