We're in the middle of an enormous financial crisis! Governments have screwed up! Money printing is making your cash investments lose value. What do you do to preserve your wealth? Read on...
Over the last 20 years there have been an epic number of financial crises. Each crisis has been bigger than the last. While ordinary people like us have largely escaped each financial crisis, especially if we've managed to keep our heads down and hold onto our jobs, you can be sure that the next crisis will be a catastrophe! Where will it come from? Who knows.
Since the earliest days of mankind, the best way to preserve wealth has been gold. Did you know that since the days of King Nebuchadnezzar the amount of gold required to buy one loaf of bread has remained almost exactly the same? So regardless of how many wars and catastrophes (and in 2500 years of human history there have been many wars!) the value of gold has been pretty much unchanged.
Gold has a great future as well - the world is running out of gold! The best gold mines have already been dug. The gold mines that remain are extremely expensive to operate. Countries which used to be rich in gold (such as Wales) have run out of gold centuries ago. China is a big gold producer, but the Chinese government is trying to get its huge population to keep more gold as a store of wealth. If the Chinese end up buying as much gold as Indian families do, the World will rapidly run out of gold!
Investment gold coins
Investment gold coins are available from Amazon and other retailers. Due to incredible demand since the financial crisis of 2008, many gold coins are in short supply and so prices have gone crazy. When buying a gold coin be careful not to pay too much above the current spot price of gold (which you can see on the home page of Bloomberg and on other financial websites). This is especially true when buying small gold coins from private collectors (such as the gold coins listed on eBay).
Popular gold coins include South African Krugerrands and US Gold Dollars. Canada and other major gold producing countries also produce their own line of gold coins.
Gold jewellery as an investment
As well as gold coins and gold bars, it's of course possible to buy gold jewellery. Jewellery will vary in price according to how pure the gold is used. When buying gold jewellery for investment purposes always use a reputable store so you don't get ripped off by being sold inferior items.
Gold jewellery as an investment is very popular in the middle east and India. The Indian market for gold jewellery is vast! Many Indian families measure their wealth in how much jewellery they own.
It's also possible to sell your unwanted gold jewellery. While gold prices are so high it's a great time to sell unwanted gold! I want to mention online stores that buy your used jewellery. Some of them have big advertising budgets and you may see them advertise on TV. A lot of them will send you an envelope on request, then you simply post your unwanted jewellery off to them and they let you know how much it's worth. While this is obviously a nice idea, be aware that some of these companies rip people off by offering very low prices for their used gold jewellery. If in doubt, before you sell it get several quotations for your unwanted gold jewellery.
Buy Gold Exchange Traded Funds
Exchange Traded Funds (ETFs) are very popular with private investors as they are an economical way to invest in markets. ETFs can be held in stock accounts, pensions, retirement funds and other accounts such as the UK based ISAs (Individual Savings Accounts) and SIPPs (Self Invested Personal Pensions).
Gold ETFs from ETFS Securities are especially popular. ETFS Securities has a huge range of commodity focussed ETFs that invest in single or a basket of commodities. ETFS Securities has a range of gold ETFs, so be sure to take care to buy the right one. Their range of gold ETFs include both paper based ETFs based on derivatives as well as physical metal ETFs that invest in gold bars.
For peace of mind ETFS Securities even offers two different physical metal ETFs - one holds its gold in HSBC bank vaults, the other holds physical gold bars in Swiss bank vaults!
ETFS Securities also has a number of ETFs that allow investors to trade the gold price. ETFS Leveraged Gold tracks the gold price by a factor of two. ETFS Short Gold is a reverse ETF so if the gold price falls the price of this ETF increases. ETFs are less risky than spread betting since you cannot lose more than the original price of the ETF. The gold price is increasingly volatile though, so trading the gold price is for experienced traders only.
If that wasn't enough, ETFS Securities also has ETFs that allow the private investor to invest in the other physical precious metals which are silver, platinum and palladium. There are also physical basket of metals based ETFs that allow you to invest in all four precious metals in a single ETF.
Buying shares in Gold mining companies
Shares in gold mining companies are an alternative to owning gold itself. The price of gold mining company shares tends to track the gold price, although many companies mine other raw materials as well, so their share prices are sensitive to general economic conditions. Major gold mining companies include Randgold Resources - its shares are listed on the London Stock Exchange.
Share prices in small gold mining companies can be extremely volatile. Expect the share price of a small mining company to soar if gold is found, but the price could crash if the mine's gold reserves are disappointing or a new prospecting region turns out to have little gold that can be extracted economically.
Buying Gold mutual funds/unit trusts
Investing in Gold mining company shares can be confusing for the private investor, so an alternative is a mutual fund that invests in many different companies in the gold mining sector. This spreads risk, plus expert financial investors invest your money on your behalf. The downside to investing in gold mutual funds is that they levy fairly high annual charges compared to holding ETFs or shares directly.
Two popular gold funds are the BlackRock Gold and General Fund and the Investec GFS Global Gold fund. BlackRock also have a World Gold fund.
Alternatives to buying Gold as an investment
Forget shares and bonds - paper based wealth will be worthless in the event of a catastrophe.
Owning your own business is good, except that in a catastrophe it might be hard to find customers unless you grow food or have something else to offer like fresh water.
Property generally retains its value in periods of high inflation. However commercial property can be hard to rent out in a bad economy. Residential property is nice if you have a property to rent out in a nice neighborhood and you can easily find tenants.
Other precious metals are also worth considering. Silver is an attractive alternative to gold - silver investments are available as silver coins, small silver bars as well as silver investment vehicles such as physical silver ETFs.
Two other precious metals fewer investors know about are platinum and palladium. Platinum is increasingly popular in jewellery, although it is extremely expensive. Both platinum and palladium have extensive industrial uses, so there will always be a demand for these precious metals. The price of both platinum and palladium reflects both their demand from the investment community as well as their demand from industries such as the vehicle catalytic converter industry.
Good luck with your gold investments, and remember that this article is for general information only - if you want investment advice then speak to an independent financial advisor before investing in gold or anything else.