Since 2001 however, demand in gold has spiked and so has its price. With the price now over $1000 an ounce, considerably more people are becoming interested in gold as an investment and an economic indicator. A lot can be learned by understanding what the rising dollar price of gold foretells.



The rise in bullion prices from under $300 per ounce in 2001 to over $1000 today has drawn investors and speculators into the gold market. Though many already have made handsome gains, buying gold per se should not be touted as a great investment. Considering that gold earns no interest and its quality never changes. It's static, and does not grow as proper investments should.

It's more accurate to say that one might invest in a gold or silver mining company, where management, labor costs, and the nature of new discoveries all play a critical role in determining the quality of the investment and the profits made.

Buying gold and holding it is somewhat similar to converting one's savings into one hundred dollar bills and hiding them under the mattress, althoughtyet not exactly the same. Both gold and dollars are favored as money, and holding money does not constitute as an investment. There's a major difference between the two however, because by holding paper money one usually loses purchasing power. The purchasing power of commodity money, i.e. gold, however, increases if the government devalues the circulating fiat money.

Keeping gold is hedge or insurance against government's proclivity to debase its currency. The buying power of gold increases not because it's a so-called good investment; it increases in value only because the paper currency decreases in value. In our present situation, that means the U.S. dollar is lossing value against gold.

One of the characteristics of commodity money (one that came about organically in the marketplace) is that it serves as a store of value. Gold and silver meet that test, while, but paper money does not. Because of this severe difference, the incentive and wisdom of holding emergency funds in the form of gold becomes attractive when the official currency is being devalued. It's more attractive than trying to save wealth in the form of a fiat currency, even when getting some nominal interest, especially when this interest often attracts the highest taxation rate. The lack of earned interest on gold is not a problem once people figure out the purchasing power of their currency is declining faster than the interest rates they might get. The purchasing power of gold can rise even faster than increases in the cost of living.

It's probably an appropriate idea to make sure you diversify a part of your savings into gold or maybe gold-backed securities like the Gold ETF. Experts advocate that everyone hold 5-15% of their assets in gold, although with the existing economic environment, I'd certainly shoot for the high end of that range.

I particularly like collectible and rare coins instead of ordinary bullion coins. Historically, the US government has confiscated bullion coins. They do not however confiscate historic or collectible coins. That's why I prefer old and rare gold coins, which don't really have a high premium right now. My favorites are the