June 20 2011|08.00 AM UTC

Stan Reybern

Coin Collecting: Should You Invest in Gold?

Category: Personal FinanceTags: , , , ,


Gold is one of the oldest forms of value. Investors usually turn to gold to hedge against inflation, governmental fiscal crises and collapses, weakening currency, and national debt. Gold can also be quite attractive since it has a universal value that is not subject to the bureaucracy of politics and other factors. However, you should still be cautious when making any investment, even in gold, as its price has fluctuated over time.

There are few different ways that you can invest in gold. The first way is purchasing physical gold in the form of coins or bars. This method has the added benefit of investing in something tangible; however, it is at risk of theft. If you do not feel comfortable storing your own gold, you can also purchase gold certificates from banks for a specific number of bars.

You can also purchase as exchange-traded products, which are traded like any other stock. While this method is safer than owning a gold bar, there is typically an annual storage fee that can add up over time. You can also purchase gold derivatives that can be a bit easier to trade as they are usually over the counter or mining stock that will spread out the risk over multiple investors.

Over the last decade, gold prices have increased dramatically. Gold was worth about $38 per ounce at the end of 1970, $386 at the end of 1990, and $1,420 at the close of 2010. As of June 2011, gold was valued at $1,537.75 per ounce at the London Gold Fixing. However, to beat the historical record price set in 1980 of $825.50 per ounce, today’s price would need to be $2,2000 per ounce. With prices expected to rise, it is possible we may see a new record.

While these prices are expected to rise, that doesn’t mean you should move all your investments to gold. It is recommended that about 10% of savings be invested in gold, not your entire life savings.

Understanding the trends, values, risks and benefits of different investments are necessary when deciding where to put your hard-earned money. Diversifying your portfolio is the best way to hedge your bets and make sure your money is safe no matter what happens. While gold can be an important part of this portfolio, make sure you are also investing in stocks, bonds and savings.

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