Is Gold a Safe Investment?

For the past ten years, gold has been an excellent investment, rising from about $300 an ounce in 2000 to over $1,600 an ounce today. That’s probably why a recent US poll showed most investors believe gold to be the best long term investment, ranking it better than real estate, stocks and savings accounts. Many Australians agree.

One of the reasons for gold’s strength as an investment is the present global debt crisis. As economies slow down, there’s been an increasing pressure to service debt. Governments all over the world have responded by increasing the money supply. The potential of future inflation has driven investors to buy gold to protect the value of their money. This trend doesn’t seem likely to change, making gold prices very stable.

Another factor making gold a safe investment is the rising price of oil and the resulting inflation caused by greater global demand for oil and dwindling global oil production. As more economies around the world become increasingly dependent on oil as a primary energy source, more investors will turn to buying gold and other precious metals as a hedge against rising inflation and the devaluing of paper currency.

Gold vs. Paper Money and Investments

Sure, there will always be a difference of opinion between economists, each offering the pros and cons of their particular point of view. But, in the long run, gold has always done very well, seldom losing its value and never given away for free.

You can’t say the same for paper money. Too many times in history, paper money had no purchasing power and was better used as fuel for the furnace or for wiping a baby’s bottom.

The same can be said about many paper stocks and investments. Companies and industries flourish and disappear, making their investments of little to no value.

In 1970,General Motors, Exxon Mobil, Ford Motors, General Electric and IBM were the five largest global companies. Not today. Only Exxon Mobil is still in the top five. The US retail phenomenon, Wal-Mart, is # 3. In 1970, it was only a small local chain store.  

General Motors is # 19 today, behind Toyota (# 10) and Volkswagen (# 12). Ford Motors, General Electric and IBM are not even in the top 20.

As you can see, investing in stocks can only be profitable if you can predict the future and know who the winners and losers are going to be.

That’s never been the case for gold. Buying and selling gold is easy. Gold is always in demand and even more so today as mining production is becoming scarcer and even more costly, keeping gold prices stable or on the rise.

Most market analysts believe gold and other precious metals will continue to do well in the future, as long the global economy remains unstable. Some are predicting gold prices will go as high $2,000 an ounce in the short term.

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