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Don't 'Invest' in Gold - Save it!

An old Chinese saying declares that wisdom begins by calling things by their right name.  Truer words could not be spoken about gold.  If you call gold by the wrong name, you begin down the wrong road, which is a serious handicap.  It can easily prevent you from understanding why you should own gold as well as how to determine its value.  The point is that gold is not an investment; it is money.

Gold, at first blush, looks like a great 'investment'.  After all, for eight years it has produced double-digit rates of appreciation against nine of the world's major currencies.  But by comparing it to crude oil prices in four different currencies (US dollars, British pounds, euros and goldgrams), we see that the price of crude oil in terms of gold is basically unchanged over a 59-year period.  In other words, a gram or ounce of gold today buys essentially the same amount of crude oil it did in January 1950.  Clearly, that result would make gold to be a lousy investment.  There has been no appreciation from owning gold - you can only buy the same amount of crude oil with gold that you could in 1950, not more. 

A so-called 'investment' in gold has generated zero return, but owning gold has nevertheless achieved something very important.  Gold has preserved purchasing power over this period, which is what money is supposed to do.  This observation raises an interesting question.

How can gold achieve double-digit rates of appreciation this decade against the world's major currencies but still buy an unchanged amount of crude oil?

The answer is that gold is not really appreciating.  Instead, the US dollar and eight other currencies are depreciating.  They are losing purchasing power, but this reality explaining this deficiency of national currencies is not new.  The price of goods and service are best measured in terms of gold, which enables a clear view of how badly national currencies are depreciating.  Gold preserves the purchasing power of those who own it.

So always keep in mind that gold is money - not an investment.  It therefore has to be analyzed as money, and to do this, it has to compared to other 'monies'. 

In the final analysis, there are two things one can do with money - spend it or save it.  Saving money is always a good thing.  For the past eight years it has been particularly wise to save gold; to accumulate it in order to build up your savings.  This strategy continues to make good sense.

So save gold; don't view it to be an investment.  Gold is money. 

excerpt from article
by James Turk

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6 Reasons Why You Need Precious Metals Metals in Your Portfolio:

1. As a portfolio diversifier
2. As a store of value
3. As a commodity, based on gold's supply & demand fundamentals
4. As a hedge against inflation
5. As a hedge against the declining dollar
6. As a safe haven in times geopolitical financial market instability