If you're thinking in investing in gold, you might be thinking that you're just basically hedging your bets. In many cases, you're probably just thinking that the best real investment is the stock market. It's not surprising why you would think this way. After all, the gold has remained stagnant or even has fallen while the price of stocks continues to go up. The good news is that this is not going to be the case forever. Stock markets have a fixed upward life. Stock booms can only go for so long. This is a reality. It is not a theory; it is not a conjecture, this is just based in history. Stock markets tend to go up after a certain point, they reach a maximum point and they start trading sideways until an event triggers a massive sell-off.
Once the stock market crashes long enough then there would be a side-ward trend then it would start going up again. In fact, if you stretch your timeline long enough, you can make quite a bit of money betting on this pattern. As it stands, the stock market is just too overvalued for you to really make any real money. How much higher can it go? It's a good idea to invest in gold because it gives you several strategic benefits. Here are just some of them:
In a very famous YouTube video, Ron Paul, the libertarian congressman from the state of Texas, grilled the chair of the U.S. Federal Reserve, Ben Bernanke. Ron Paul asked a lot of questions. A lot of these questions made Bernanke squirm. You probably already know that Ron Paul and many libertarians are not big fans of the U.S. Federal Reserve. The U.S. Federal Reserve is very big on just printing out money. What happens when you just print out money without any real value behind it, you depreciate money? If you are worried about inflation, you have to blame U.S. Federal Reserve and really all central banks from all over the world. They're just printing out these pieces of paper and these pieces of paper depress the value of the pieces of paper called money that's already floating out there.
Anyway, Ron Paul asked Bernanke whether gold was money. Bernanke said that gold was not money. Bernanke is absolutely correct. However, he conveniently left out a big part of the picture. For money to have any real value, people have to trust it. The moment people no longer trusts a currency, the price of that currency crashes. This is exactly what happened in Zimbabwe. This is also what's happening to the U.S. dollar. The U.S. dollar is crashing. If you pay attention to the price of grocery items, oil and other items, they are skyrocketing. This is not a function of an overheating economy or scarcity. In many cases, it's a function of the money that is being used to buy those commodities. When the value of the money being used to buy a commodity crashes, the price of the commodity goes up.
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Bernanke's answer left out a key aspect of the value of money. When there is something of real value backing up the money, the money loses its value slower or doesn't lose its value at all. Compare inflation rates in the United States before and after the U.S. government took the U.S. dollar off the gold standard. It's not even a comparison. Sure, gold is not money. However, it gives value to money -- that's how it works.
A key part of this is because it's a recognized store of value worldwide. It doesn't matter what religion you have, the language you speak or what race you are, chances are that you would recognize that gold has serious value. This is why money backed by gold stands a better chance of fighting inflation over time. This is one fact that doesn't get enough airplay nowadays but investors the world over need to understand this.
If you understood the first point raised above then you would understand that gold is a great hedge. What is a hedge? It's an investment that you buy into to offset any losses with other investments.
Sure, stocks are very sexy. Who wouldn't appreciate the twenty-five percent appreciation every single year? However, you would be a fool to think that the stock market would continue to log such gains every single year, year after year. You might be lucky and park a lot of your money in a particular stock that clocks the twenty-five percent appreciation annually for maybe four years. However, for every year that passes, you're basically rolling the dice -- anything can go wrong. If you are to study the performance of the top money managers on Wall Street, it would be impossible to find somebody that's been right for the past twenty years. All of them had their bad years and how bad is a bad year? All their gains can evaporate in a bad year.
This is why it's always ideal to hedge your investment portfolio. Gold is a good investment as a hedge because as mentioned above, it's a recognized store of value so if the prices of stocks would begin to crash, the price of gold shoots up. If you park enough of your money into gold investments and other precious metals, you can offset the loss of value in your stock holdings. This is pretty straight forward. Why is gold a good investment? It's a great hedge.
You would think that people who invest are very smart people. You would think that these people are very rational and don't let their emotions get in the way -- you would be absolutely wrong. In fact, looking at the many different investment fads throughout the ages, you'd be surprised at the kinds of things people invested in. People invested in all sorts of things from rag dolls to tulip bulbs to everything in between. As you can probably tell, many of these investments crashed. This is not even talking about fad stocks or fad bonds that people invested in.
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The reality is that in most cases, there is no such thing as an investment that can withstand the test of time. People change, societies change, fashion has changed, assumptions and expectations changed. However, there is one investment that has survived the test of time. How much time? Thousands of years! I am of course talking about gold. If you are trying to answer the classic question "Why is gold a good investment?” you might want to start with history. Throughout history, gold has always been the preferred investment. People understand that gold is good investment because if the government crashes, if the stock market crashes, there's war, riots or mass killings, people can just liquidate all their money, convert it into gold then start fresh someone else because they know that their investment can be cashed in fairly quickly and will retain its value.
Sadly, very few other investment classes and investment vehicles can boast of these qualities. Gold has done well in the past; gold is doing well now although its price tends to fluctuate, you can be sure that gold will still do well way into the future. If you're still on the fence trying to figure out why is gold a good investment, you want to consider all these different factors and the amount of versatility it will get you assuming that the unthinkable happens which is a market crash.