Should you buy some gold? (Part 1)

14 October 2008

http://img227.imageshack.us/img227/8267/goldsd4.jpgIn times of economic instability, no other market in the world has the universal appeal of the gold market.

But before I pull a Michael Scofield with you lot and rob the central bank Prison Break style (tatooing hurts, apparently), I decided to first do some ground work research.

I have put together this 2 part series article to explore whether gold is a good investment now, and if so, how to go about getting some.

In Part 1, I will start with a very brief history of gold, to give you a better understanding of its origins and why it still holds value today. We will then move onto more recent times, to put some figures and statistics in perspective, rounding off with some introductory resources for you.

In Part 2, we will take things a step further, discussing the investment pyramid and discuss how you should allocate gold in terms of your own assets and investments. We will also delve into more specifics, such as how much gold should you buy, how to go ahead buying it, and conclude it with some decent resources to do so.

So let's mine some gold together. Yes, just you and me, my friend. Because sharing is caring.

"It's ok sweetie, we can hide the gold in the walls of the trailer"

For those ahead of the game, fortunes have been made.

Take David and Maureen Somers, a couple that purchased gold at a pretty good time by selling their 3 bedroom detached house in 2004 for a significant profit, before investing all their money into gold.

Now, 4 years later, they made a nice little fortune.

How much did they make exactly?

David refused to reveal, saying it would be 'vulgar'. Probably for tax reasons...whatever.

Is it the right time?

According to this article, The Somers have since REdoubled their investments. Not a bad performance for the current global crisis!

But, how much do you really know about gold? Would this still be a wise time to follow in the Somers' footsteps? Has the time past, are you too late? Could you still profit by bagging yourself a few ounces of atomic number 79, or learning some Alchemy to make it on your own?

All these questions may be answered by knowing a bit more about the history of gold and understanding how it falls in place with the very fluctuating economic torrents.

So before you go spend your savings on a metal detector, let's just see how we can maximize you hitting 'Goldpot'.

The (very brief) History of Gold

Gold has been a highly sought-after precious metal, stretching back as far as recorded history goes. Much of the gold mined throughout history is still in circulation in one form or another. The Egyptians claimed they had 'more gold than dirt'. The Romans mined and extracted it on a large scale, in Spain from 25 BC and Romania from 150 AD.

But it goes back as far as 670 BC when King Gyges of Turkey minted gold coins for his travels. Empires have risen, nations have fallen, just to acquire a piece of gold. Individuals have used gold as a store of wealth and as insurance against the fluctuations and depreciation of paper money and other macroeconomic and geopolitical risks. Much of that is due to its historically high value and the fact that its considered a common currency amongst every country in the world.

Then, in 1489, King Henry VII introduced the first gold currency into the global market, until World War I set off use of the paper currency, which we all know too well about these days.

So that's just a brief history of gold. If you want to learn more, start here [Wikipedia] and here [taxfreegold.co.uk]

Some More Numbers

Today, bullion gold coins are still worth pretty good $. It depends on the world market, and fluctuates alot, hedging against the US dollar and other paper currencies.

It is estimated that there is only 120 to 140 thousand tonnes of gold available above the ground now. [gold.org]

That's about the size of a solid gold cube 3 metres short of the length of a tennis court.

What's interesting about this, is that this is worth approximately $1.8 trillion USD.

Of this, $1.3 trillion, approximately 75% of gold, is privately owned. In fact, there's only about 30,000 tonnes, or less than 1% of the world's sovereign debt, held in central bank gold reserves.

Compare that to a US debt of now over $10 trillion USD, that shows the absolute trust that people have put into paper currency over the last 20 or so years.

More Recent Times

Here's a few more figures to put things in perspective to let you decide what kind of 'future' you think gold might have:

1999: Gordon Brown urges banks to sell half their Gold reserves, dropping prices to its lowest in 20 years.
2002:
The average cost of 1 ounce of gold between 1999 and 2002 at 17 auctions came to an average of $275.6
2008:
Gold hits $1,000 for the first time.
2008:
Gold currently trades at approximately $900 an ounce
Currently:
Approximately $850

It may also be worthwhile reading this Mark O'Byrne article, a beginner's guide to gold investing.

Also this article which gives a brief intro to investing in gold. [thisismoney.co.uk]

So that's a very basic intro to gold, before we move to Part 2.

Further facts on Gold [Commodity Online]

Feel free to leave your tips and comments below, as the best of them will be included in Part 2 of the series.

TOPICS:   Investments

3 comments

  • PhilC
    Not researched this at all but a friend who has knowledge of such things believes that the Goverment can sieze all privately held gold in UK. Phil
  • Vince W.
    thanks phil - very interesting, i haven't heard anything about that but may be worth looking into for part 2 for sure
  • What B.
    [...] “There are around 15,000 bars in this picture alone - that’s about 210 tonnes of pure gold, with a value of nearly £3 billion,” According to The Daily Mail, “and there’s plenty more out of view.” Maybe it’s indeed time to get a bar or two. [...]

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