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



The rise in gold prices from under $300 per ounce in 2001 to over $1000 today has drawn investors and speculators into the precious metals market. Though many already have made handsome gains, buying gold per se should not be touted as a good investment. After all, 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 analogous 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 large difference between the two however, since by holding paper money one usually loses purchasing power. The purchasing power of commodity money, i.e. gold, however, escalates if the government devalues the circulating fiat money.

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

One of the characteristics of commodity money (one that originated naturally 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 smarter when the paper currency is being devalued. It's more attractive than trying to save wealth in the form of a fiat currency, even when earning some small amount of interest, especially when this interest often attracts the highest taxation rate. The lack of earned interest on gold is not an issue once people figure out the purchasing power of their currency is declining much higher rate than the interest rates they might earn. The purchasing power of gold can rise even faster than increases in the cost of living.

It's probably a smart idea for you to diversify a part of your savings into gold bullion or even gold-backed securities like the Gold ETF. Experts recommend that everyone hold 5-15% of their investments in gold, although with the current market situation, I'd absolutely shoot for the top of that range.

I particularly like historical 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. For this reason I prefer old and rare gold coins, which don't really have a high premium right now. My favorites are the