Is Gold a Good Investment?

Is Gold a Good Investment?

With the range of options that an investor can choose from at the present moment, making an investment decision can be truly overwhelming. From the entire gamut of investments, ranging from stocks, bonds, real estate, US treasury securities to rare metals like gold and silver, an investor must create a portfolio that can effectively help him meet his or her short and long term financial goals. With gold prices at an all time high right now, many investors are thinking about adding it to their portfolio.

I have endeavored to only present the pros and cons of gold investment in the following lines. The ultimate decision about whether to invest in gold is entirely left up to you of course. The chart of gold price changes in three decades should help you put things in perspective regarding why gold is being seen as a good investment option at the present moment. It is a listing of gold prices ranging from 1975 to 2011.

As you can see above, gold prices have gone through many ups and downs in the past three decades but the rare metal has only been rising in value for the past few years, attaining its highest value ever in 2011. Whether or not buying gold right now is a good investment option is a debatable point, but as the charts show, it’s certainly a good time to sell, with the price attaining new highs every day. There are many ways to invest in gold, ranging from bars, coins, exchange traded funds, gold accounts, gold certificates and derivatives. Here is an objective analysis of the pros and cons involved.

Pros

One of the advantages of investing in gold is the easy liquidity it provides, compared to other investment options. Gold can be bought and sold through banks and jewelry outlets any time, acting as a ready liquidation source.

Secondly, although gold prices have fallen in the past, the rarity of the metal and limited supply ensures that it will never suffer from total devaluation, though it may go through ups and downs. In times of recession, gold is invested in heavily, which invariably leads to a rise in valuation. This makes it one of the best investment options to hedge against inflation, though better options like ‘TIPS (Treasury Inflation-Protected Securities)’ exist now. Thirdly, you can benefit from the price rise in gold that is expected to continue in the near future.

Cons

One of the minus points of gold investing is the fact that it’s a speculative investment and predicting its future value is difficult. The price is entirely dependent on market demand and supply, as well as investor expectations all over the world.

As an investment, gold cannot provide you with any returns in the form of dividends, which securities like stocks may provide. Also, storing gold involves additional costs, which the investor must bear. However, options like gold certificates and exchange traded funds exist that do not require you to physically store the gold. The most basic disadvantage of investing in gold lies in the fact that it freezes your investment and cannot provide periodic returns, besides being subject to a high degree of speculation.

Well, gold is certainly a good investment to have as a small part of your portfolio right now. Since its value has been continuously rising for many months now, you can invest a small percentage of your savings in it, hold till the price appreciates substantially and then sell it for a considerable profit, before it starts falling in value, as it inevitably will.

However, this course of action is only recommended if you are ready to take the inherent risk of price fall. If you are a defensive investor, a period of rising prices is certainly not the best time to buy. All that said and done, this is my personal opinion and you should base your decision entirely on your own analysis and the degree of risk you are willing to take.