A few Questions and Answers about Gold

Holding gold as an investment doesn't pay interest. Why should it be included in my portfolio?

Instead of being a liability, this can actually be looked at as one of gold's biggest strengths. If gold were to pay interest like stocks, bonds, or other paper assets do, the return would be dependent upon the performance of another individual or institution. Furthermore, those types of assets are also directly affected by the performance of the currency in which they're denominated.

Gold, on the other hand, has no dependence on the performance of any other entity for its intrinsic value. Even though it does not pay interest directly, gold historically seeks a price level that takes into account a currency's rate of inflation. During periods of rising inflation and interest rates, the appreciation in the price of gold is at its greatest. However, during times of deflation, gold's price tends to stay relatively flat while interest rates recede. This can largely compensate for the fact that it earns no interest.

Are gold stocks a better investment choice than actual gold?

The fact of the matter is that gold stocks are stocks first and gold second. Owning gold stock is much the same as owning any other type of stock. It should be noted that during periods of major downturn in the stock market gold stocks will generally fall just as other stocks do. What's more, it's entirely possible to own gold stock during a time of rising gold prices and not profit from the uptrend simply because the issuing company itself underperformed or had perceived weaknesses in the eyes of the investment community. Gold stocks, therefore, are in actuality not an investment in gold but in the gold's producers, having all of the risks and possibilities inherent in owning any other stock.

Isn't gold just another commodity, like orange juice or pork bellies?

It's true that gold trades on the commodities exchanges just like orange juice and other commodities. However, unlike the others, which are produced primarily for consumption, only gold is accumulated and saved. It's also the only commodity that's used as money to facilitate future consumption. Most of the gold ever produced is still in existence today in one form or another, which is known as the 'asset preservation of gold'. Such a characteristic can hardly be said of orange juice, pork bellies, coffee, or sugar. These functions serve to separate gold from all other commodities and place it at the top of the value table. Simply stated, gold is an enduring commodity.

But aren't we off the 'gold standard'?

Even though the United States – and, effectively, the whole world – no longer backs up their currencies with stores of gold, it's still held as a reserve asset by nearly every central bank around the globe. Gold serves as an asset of last resort that can be used in the midst of severe international crises such as war, economic upheaval, environmental disasters, and the like. Gold's intrinsic worth and relevance today have not changed from previous times. It's the asset that holds universal value for both individual investors and nations alike.

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