What Is Gold?
Unless you live under a rock, you are already somewhat aware of what gold is. Of all the elements mined from the earth, the most useful is arguably gold. The inherent properties of the mineral make it the ideal candidate for a large number of products on the market. Gold is a great conductor of electricity, it will never tarnish, and it is extremely easy to work with. It can be made into wire or pressed into unbelievably thin sheets. As with many alloys, gold can be melted down and cast into any number of shapes. Perhaps most notably throughout history, it has been desired for its beautiful color and brilliant luster. The largest demand industry is currently jewelry, taking up around 50% of the demand in gold, while another 40% comes from direct physical investment in gold (coins, bullion, medals, and gold bars).
The Gold Standard
We are a long way away from the good ol’ days of finding random chunks of gold lying around. Extracting gold from the ground was never easy, but it has become increasingly difficult to mine the mineral. The scarcity of gold is, in part, what gives it its value. Simple economics tells you that a high demand with a limited supply increases the value of a product. The amount of gold that could be mined from the Earth per annum is predictable, and all of these qualities made gold the ideal candidate for sound money, and it was used for money in the USA under the gold standard until 1933 when America switched to fiat currency.
Investing in Gold
Looking at gold prices relative to stock prices during the bear market of the 2007-2009 recession provides insight as to why gold is a good investment in any portfolio as a safe-haven asset. Between Nov. 30, 2007, and June 1, 2009, the S&P 500 index fell 36%, while the price of gold increased by 25%. While nothing is a guarantee during turmoil, it is generally accepted that gold performs relatively well during times of uncertainty.
There are many ways to become an investor in gold. You can buy jewelry, invest in the actual metal as coins, or even invest in companies that mine the mineral from the earth. From gold ETFs, gold certificates, and futures contracts, there exists a vibrant marketplace for anyone looking to dip their toes into the yellow metal. We recommend checking out this e-book for more information on profiting off of this exciting marketplace.