With trade deficit in the United States at all time high, a falling US dollar coupled with political instability in many parts of the world, one could safely conclude that this may be one of the most uncertain economic times in history. That is why many investment experts are advising the public to consider acquiring precious metals such as gold or silver, as an option for wealth protection and preservation.
Gold versus Other Precious Metals
Platinum, palladium or silver are some of the precious metals one could consider for wealth protection; however, the demand for these metals arises chiefly from their industrial applications. Gold, on the other hand, is produced primarily for wealth accumulation. Its value arises not from its usefulness in consumption or industrial applications, but from its use and worldwide acceptance as a store of value. Gold is, indeed, money in the truest sense of the word.
Advantages of Gold over Other Precious Metals
Gold’s beauty and its resistance to tarnish have made it the most desired precious metal of all ages. The Incas referred to gold as the “tears of the Sun”; and in biblical times, the Israelites made it into an idol of worship, so the story goes.
Unlike other precious metals, gold does not tarnish, corrode or perish; neither does it have quality grade. Gold mined two thousand years ago is just as ‘golden’ as the gold extracted from the Witwatersrand basin today.
Another major reason one would look to gold as an asset class is because it has always maintained its intrinsic value. Gold as an asset is less likely to get lost in an accounting mismanagement; neither will its value be diminished during a market collapse; rather, its value- in most cases- has always been inversely proportional to the overall market performance.
Currently, despite theoretical recovery in some sectors of the US economy, financial markets continue to appear wobbly, threatening any further recovery. According to economists, in the event where the economy continues to mark time, the government may be forced to pump more currency into it still in an attempt to rescue it. This is when the value of gold goes up; for, the same dynamics that cause the economy to suffer decline are the ones that cause the price of gold to go up.
According to a report published in the Wall Street Journal in July 15, 2009, more and more private citizens are turning to gold coins; they are buying up American Eagle gold coins, Canadian Maple Leaf gold coins, and the South African Krugerrands, “amid apocalyptic panic over the financial system” (WSJ). These buyers know that gold tends to outperform other investments during periods of world economic turmoil; hence it has often been referred to as the "crisis commodity."
The integration of the global economy has made it likely for an economic failure in one part of the world to undermine the entire world economy. As one has witnessed lately, foul investments and shady transactions can destabilize poorly run banks. This could sink a nation’s economy, which could in turn cascade to engulf other world economies.
The precariousness of the global economy has led many investment experts to assert that it would be a wise and prudent move for individuals to put their wealth where its intrinsic value could never be eroded no matter what happens in the markets.
Daniel Webster once said: “Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money”. One may want to reflect on this statement.
References:
Light, Larry “Catching The Gold Bug,” WSJ, July 15,2009.
Kosares, Michael The ABCs of Gold Investing - How to Protect and Build Your Wealth with Gold, Addicus Books, April 1, 2005.
William Ekpa - William Ekpa majored in Computer Science and has worked for several Information Technology firms as a consultant ever since he left ...
