Investment: Is Gold Coming Back? (I)
What is the difference in investing in gold versus other investment markets? Is gold coming back?
Posted: Oct 2010
Recent global crisis changed drastically the value system. The global crisis affected whole range of markets e.g. real estates, stock market, currency exchange, etc. It is very difficult to find a good investment niche today, since all markets are under a great risk of producing losses.
But today, one of the oldest institutions of investing seems to coming back. It seems that we are coming to the end of era of money that we knew for the last 100 years. Uncertainty of global financial markets forced the investors to move their investment into gold. The price of ounce of gold today is five times more today, than 10 years ago.
Is investment into gold really safe and profitable? The answer depends on way how you look at the current crisis and your expectations. If we compare the value of oil expressed in UK Pound, US Dollar, Euro and gold we see that price of gold fluctuated drastically expressed in financial value, ratio between 1:10 to 1:15. But ratio between oil and gold is almost unchanged. In other words, gold kept the purchasing power over time.
Current global trends are not in favor of currencies. There is tendency that value of global currencies will decline in years that are ahead of us. Fallen western economies, companies and banks are trying to survive by only mean possible – printing of the money. Sizeable printing of the money is inevitably leading to inflation and hyperinflation.
It is the fact that gold had volatile periods in the history. The price of the gold went from $850 per ounce in 1980 to $250 in 2000. Today the gold is above $1.350. If we take inflation of dollar into account than the value of gold in 1980 is $2.200-2.300 of today's value. This means that current real value of the gold is still behind the value that gold had in 1980.
What is the future of the gold? Fear of continuation of recession initiated increase of demand for the gold. The gold is steadily increasing the value over the period of last 10 years, by average annual rate of 10%.
How much of investment portfolio should be invested into gold? Since the gold has volatile history the investment of 5-10% is reasonable share. Should current global financial trends and gold trends continue, this ratio could be at least 20% to 30% of total investment portfolio. Josef Stadler, CEO of Swiss USB bank recommends investment of 7% to 10% of portfolio into gold or other precious metals.
Billionaires and investment gurus George Soros and Warren Buffet claims that the gold is the „last big balloon“, since the precious metals are difficult and expensive to exploit. Silver is also following the growing trends of gold. The price of silver went up to around $23.
It seems that era of gold and other precious metals is coming again. Financial markets shown to be very unpredictable in the near past. Gold seems to give safety for investment and preservation of value in the incoming period.