Spot Gold Price Ticker

What's Driving Gold?

It has paid much attention to the rising price of gold in recent weeks, leading investors to wonder, What are the current factors driving gold? The easy answer to this question is – fear. We have been witnessing a bull run in eight years gold, but many believe that is up is far from over. What is the role of gold in the credit crisis? Metal Is buying a better investment than investing in Gold mining companies? Is it too late to take advantage of growth?

Before we can answer these questions, we will first review what role a gold investment could play in your portfolio. Investors buy gold for a number of reasons, including:

• A hedge against inflation.
• To protect against a falling dollar.
• As a safe haven in times of instability in financial markets and geopolitics.
• As a store of value.
• As a portfolio diversifier.

The decline in precious metals asset class, gold is a monetary metal whose price is determined by various factors. Among these factors are: inflation, fluctuations in the dollar and U.S. stocks, the currency crisis, the volatility interest rates, geopolitical tensions and global increases or decreases in the prices of other commodities.

The credit crisis deflation gold and coins are treasured and the purchasing power of both increases. But gold also thrives in inflationary environments. This is due to the unique property with a double gold function as much money as a commodity. Think of gold as money, and money is accumulated in deflation for gold, naturally tends to rise. The point here is
that gold does well during extreme economic environment. Consider some of the benefits of owning gold in the paragraphs that follow.

Inflation

As inflation rises, the price of gold rises. Since the end of World War II, the five years that U.S. inflation was at its height were 1946, 1974, 1975, 1979 and 1980. During those five years, the average real stock, as measured by the Dow, was -12.33%, the average real return on gold was 130.4%. The atmosphere in the 1970s was no different to
the current environment. The common denominator in both periods are huge budget deficits, loose monetary policy, the high price of oil (2008) and open-ended costs of war (Vietnam in Iraq and Afghanistan).

Deposit value

According to the World Gold Council, gold has maintained its value in terms of real purchasing power in the very long term in the U.S., Britain, France, Germany and Japan. Despite fluctuations in the price of gold has always returned to its historic purchasing power parity with other raw materials and intermediate products. Gold is tangible, is a physical asset
brings a sense of comfort when intangible assets, like stocks, are evaporating. But while they try to have a store of value, it is worth noting that gold, like stocks and other investments, is also subject to price fluctuations.

Safe Haven

Many investors are diversifying away from traditional stocks and gold due to the continued uncertainty surrounding the financial markets. Gold has been considered a safe haven, or "crisis commodity." Of course, as investors flock to safety investors the price of gold is pushed even higher. Historically, as people begin to distrust their paper assets (ie currency), this positively influences the price of gold also as we shall discuss in the next paragraph.

Currency hedging

Not all citizens have full faith in your local currency at times this may even include the U.S. dollar. So what do they do? Buy hard assets like gold (a tangible, physical item or object of value). Although no U.S. secret Dollar is the world's reserve currency and the primary means of world trade, the U.S. dollar as the euro, the yen and other world currency,
is really nothing more than paper or fiat money. Fiat money is money that is intrinsically useless and will be used only as a medium of exchange. Not There are physical assets that support the U.S. dollar today (or other world currencies for that matter) as its gold backing was stripped in 1971. But since gold is bought local currency, in this case the dollar, any decrease in the value of the dollar makes the price of gold higher.

Diversification

While all the other rationales for owning gold are viable, perhaps the most important reason to consider gold in your portfolio is its diversification benefits. Gold, like many other commodities, usually has an inverse relationship with the market. Assets with perfect negative correlation to other assets in a portfolio of investors to help cover their risks away, in effect
reduce volatility, while improving performance. Gold and other tangible assets have been historically a very low correlation with stocks and bonds. Because the gold price increases in response to events that erode the value of traditional paper investments like stocks and bonds, it is worth taking into account the equitable sharing this resource as part of a
diversification plan. The "right" allocation will depend on your specific circumstances and risk tolerance, but a good indicator could be between 3% and 8%.

Owning Gold

The gold market is highly liquid and there are many ways that investors can own gold. The most traditional way to own gold is through gold bars, as bars gold and coins. By purchasing the physical asset, many people buy gold coins, taking into account the potentially high storage costs or risks associated with owning of gold bars. The gold coins can be easily purchased directly from the U.S. Mint or approval and precious metals dealers. Depending on where you buying coins and current demand levels, you may have to pay a premium (above the current spot price of gold) to purchase the coins.

Another form of gold, access is through futures contracts or similar products (ie, the gold ETF Ticker: GLD), which offer investors a relatively cost efficient and secure way to access the gold market. A gold ETF is an exchange traded fund with gold is the start, only commodities are traded. Gold ETFs are listed and traded on the stock market and investors to obtain units for exploitation in the gold ETF. The performance of gold ETFs more or less the same as the spot price of physical gold. It is worth noting that the IRS treats gold as a collectible for the purpose of long-term capital gains tax, therefore, gains recognized by individuals Proceeds from the sale of gold ETF are subject to a capital gains rate of 28% if held for over a year.

Finally, investors can also consider gold exposure through gold mining stocks and funds. Some argue that this is more taxes and more profitable, since there is no storage quotas, refers to theft and stocks of gold mining also benefit from reducing capital gains rates. On the other hand, the stock owner of a mining company is not really the same as owning real gold.

In closing, recent rise in gold is really a surprise, given the Recent financial uncertainty in global markets. As the fear and dread pervade investor markets, investors are looking for physical assets to help preserve their wealth. Times of crisis help stimulate demand for gold and, possibly, ease of access assigned by the funds or the gold ETF has also pushed up
gold price in recent years. To some extent, the demand for gold, mostly by investment funds, it feeds on itself.

While Some analysts suggest that the gold price is being inflated by a torrent of new investment money (which means it could be overvalued), others predict growth prices even further down the road. Either way, the argument that gold can offer sufficient benefits (inflation protection, coverage exchange, diversifying portfolio) to ensure at least some representation of its collection of assets.

About the Author

Cathy Pareto, MBA, CFP®, AIF® is the Founder and President of Cathy Pareto & Associates, Inc. a fee-only financial planning and investment management firm.

www.cathypareto.com
Blog http://cathypareto.blogspot.com/

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