Gold as Investment

by Madhubanti Rudra

Throughout the history, gold too has been subject to price volatility and uncertainty. But every time it resurfaced with fresh all-time-highs. One thing the profit-hungry investors hate most is any kind of uncertainty and this is precisely what makes gold the more preferable option in the portfolio of an average individual investor.

For generations gold had been considered the insurance against bad times; for today’s investors, gold is the most secure parts of the portfolio. What makes gold the traditional favorite at a time when the major currencies fall from grace? Should you really prefer the yellow metal over currencies when it comes to the choice of investment? What are the global factors that make gold so much trustworthy in a financial atmosphere shrouded with doubts and distrusts? To find the answers read the article below.

A dwindling equity market and the dollar’s downfall conjure up the current global economic scenario; the first quarter of 2008 is almost over and it is said, that the global market has already bumped into its worst financial phase.

Throughout the history, gold too has been subject to price volatility and uncertainty. But every time it resurfaced with fresh all-time-highs. One thing the profit-hungry investors hate most is any kind of uncertainty and this is precisely what makes gold the more preferable option in the portfolio of an average individual investor.

The soaring gold against declining dollar making it the darling of the global investors

Prior to US government’s Federal policies the fears of recession loomed large. This was followed by the US announcements of 0.75% Fed Fund rates cut and the talks about $150 billion tax cut. They were expected to pump in fresh blood in the world economy-even at the expense of dollar, but they failed miserably to yield expected result that is to regain the confidence of the investors.

For common investors across the globe, individual or institutional, the Federal move was too expansive to communicate its true worth. These moves were basically meant to bring in temporary stability offering no permanent solution for the ongoing crises. But what the global market needs at the moment is much more than mere policies for stabilizing, it needs policies to regain trust and confidence in the investors for a sustainable economic growth all over the world.

In this situation, gold offers the much needed relief to the investors confused by the global economic turmoil. The fact that gold prices are bound to rise under the backdrop of US inflation further add to the investors’ conviction on gold as a safe investment tool.

The global financial trends added to the investment value of gold

There is another factor that ensures that gold curve will continue to move upward: in the absence of global financial harmony, every nation is hell-bent on protecting its own economic interests-no matter if it affects the other. As such the other nations will cut benefits from the instability of the US economy and this precisely explains the surge of gold prices against world’s most awed currency.

So the net result is: the developing nations will seek breather in gold as the investment in paper currencies become increasingly uncertain. The rich but fast declining economies will seek safety in gold as they themselves lose confidence in their own currencies. As a combined effect of these two the gold price will continue to move upward.

Gold is going to be the inevitable investment tool for the investors-why?

The governments of the USA and a few European countries seem to find only solution in ‘protectionalism’ to combat the present crisis. Going protective is the only way out for them if they want to stop drainage of wealth from west to east. More inflation and further cuts in the dollar value are predicted as a result of these trial-and-error policies. As such the only means that can give the investors long term protection is gold; after all, over the past few years it has consistently demonstrated outstanding performances while currencies and equities failed to maintain that consistency.

So until the global giants come to a common platform to work out a cure for the present sickness of the international economy, the yellow metal will continue to glitter; as always they will remain the most trusted commodity which is bought at the good times to act as the hedge against unseen future.