Is Gold Still a Viable Investment?

Investors typically buy gold for two reasons, financial gains realized with an increase in gold prices or as a safe haven investment against political, financial, or economic unrest. Whether or not gold is considered a viable investment at any given time depends on the reason for investment, gold market price fluctuations, and the stability of other investments.

Investors buying gold hoping to cash in on financial gains due to rising gold prices need to consider the rise and fall of gold prices and fluctuations in other investment markets. The realization of profit from any investment is dependent on the buy low, sell high rule. This can be nearly as hard to predict for gold as for any other investment. In November 2008, for example, the gold price fell to around seven hundred dollars per ounce, yet less than a year later in September 2009, gold closed at over one thousand dollars per ounce for several days in a row. Anyone who bought and sold at the right time would have made a very respectable profit, but like any investment, fluctuations in gold prices are hard to predict, particularly for individual investors who are not financial professionals.

Buying gold at a price point over a thousand dollars therefore does not seem to offer much chance of a substantial upswing, while buying gold around seven hundred, historically seems to have been an excellent investment. Gold is a particularly attractive investment during economically uncertain times, but during periods of economic stability gold prices tend to fall, so investing in gold for financial gain still carries the risk inherent in most investment decisions.

Buying gold for the second reason, as a hedge against various uncertainties, may be an easier decision to make. An investor who views gold as a safety hedge and diversification tool is less likely to worry about the fluctuating price of gold. Gold purchased for this reason is typically obtained as part of a long-term investment strategy and higher gold market prices may still be attractive in times of economic or political unrest.

Because there is such a large quantity of stored gold relative to annual production gold prices rise and fall based mainly on sentiment rather than on differences in annual production. The demand for gold and thus the price of gold rises when a large number of people fear that some societal crisis may lead to failures in currencies. Gold is seen as a tangible asset that will always have value, unlike paper currency, which can become worthless with the failure of the government that backs the currency. This sentiment is precisely what drives the price of gold higher and the reason that this type of investor may decide to buy gold even at a relatively high price.

Gold prices have been rising since the September 11, 2001 terrorist attacks and although there have been some fluctuations, gold prices present a relatively smooth rise in prices. The market fluctuations caused by war, terrorism, and natural disaster are likely to continue. Economic crises such as the sub-prime mortgage fiasco in the United States, the resulting decline in the financial markets, and the corresponding worldwide economic recession are likely to continue as well. The combination of all these factors makes gold an attractive investment for most investors regardless of the reasons for buying gold.

For most investors, therefore, gold is still a viable investment. For investors looking to buy gold strictly for financial gain, it merely takes buying at the right low point to realize a substantial profit. For investors looking to buy gold as a safety hedge, it is a very attractive investment alternative. Given that there always seems to be another political, economic, or financial crisis just around the corner, a diversification strategy that includes at least some stake in gold, would seem to be an excellent investment decision for almost any investor.


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