|
Gold is a Safe Haven: In
volatile and uncertain times, there is typically a "flight to
quality" as investors seek to protect their capital by moving it
into assets considered to be safer stores of value. Gold is immune
to most troubles that can befall a market, such as the current credit
crisis that is crippling the US markets and economy.
Gold is Money - Gold is a Currency
Hedge: Gold has long been regarded
by investors as a protection against currency devaluation. There
are always a few currencies in the world that are threatened by
mismanagement by their own governments. Gold allows investors to
protect themselves. History suggests that gold always wins against an
inflating paper currency (i.e. one that is subject to excessive supply
growth.)
J.P. Morgan was quoted as saying about gold:
"Gold is money. That's it."
Alan Greenspan, in justifying the US's
decision to continue to hold gold reserves, said in 1999:
"Gold still
represents the ultimate form of payment in the world. Germany
in 1944 could buy materials during the war only with gold. Fiat
money in extremis is accepted by nobody. Gold is always accepted."
Gold is a Commodity: As a physical asset, gold can rise in price
as its underlying fundamentals change (which are changing for the
better.) Investors who follow the physical gold market closely can
make robust profits.
Gold is an Inflation Hedge
The value of gold, in terms of the real goods and
services that it can buy, has remained largely stable for many
years. In 1900, the gold price was $20.67/oz, which equates to
approximately $503/oz in today's prices. In the two years to end
December 2006, the actual price of gold averaged $524. So the real
price of gold changed very little over a century. In contrast, the
purchasing power of many currencies has declined.
Hedging
The gold industry was the first to use hedging and,
interesting to note, the gold industry is the first to exit
hedging. Major companies (such as Barrick, Newmont and AnlgoGold Ashanti)
have unwound hedged positions with more unwinding to come, inevitably
creating a positive impact on the gold market.
Uncertain (and Unprecedented) Times
There is a tremendous amount of financial risk in the
system (credit crisis, level of household debt, the housing bubble, the
amount of U.S. Treasuries held by foreign central banks, etc...) and more
shakeout in the financial industry to come. History has proven,
when all else looks risky, gold flourishes.
|
