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Should you be investing in gold?

Gold has been popular with investors for centuries. Many modern investors turn to gold when the economy sours as a defensive play.

In times of economic uncertainty, gold is, well, the gold standard for safety (after U.S. Treasury issues). Its price often tracks with market or economic swings.

When investor confidence is shattered as it was in 2008, gold prices climb as nervous investors looked for a safe place to put cash pulled out of the market.

Gold is a haven in times of inflation because it retains its value much better than currency-backed assets, which may climb in price, but drop in value.

Good Idea

Is investing in gold a good idea? Maybe and maybe not.

Investing in gold is not like buying stocks or bonds. You can take physical possession of gold by buying either gold coins or gold bullion.

You can also buy stock in gold mining and producing companies, gold futures contracts. gold-focused exchange traded funds and other regular financial instruments.

However, the purists insist that buying gold directly is the only way to take advantage of its special benefits.

Don’t invest in gold with the idea it always goes up. Like any asset, gold is subject to supply and demand pressures that cause the price to fluctuate.

In 2008, the price of gold varied from around $720 an ounce to almost $980 an ounce. As the economy sunk further into the recession, gold prices soared.

Speculation

Gold is also subject to speculation like other marketable asset.

Because you can buy gold in many forms, an important question to answer for yourself is what form of gold is best for you.

Owning gold coins or bullion is one choice, but not the only one. Gold in the form of coins or bullion must be stored in a secured environment (not under your mattress). This may involve paying a broker or other firm a storage fee, which can eat into any future profits.

Physically owning gold also has strong emotional appeal – much more so than investing in stocks or futures contracts, for example.

What happens if you need to cash in your gold coin or bullion in a hurry? You shouldn’t have trouble converting your gold to cash, however you will have to take what a dealer will pay.

Gold coins and bullion are often sold at a premium and bought at a discount, so you may not get market price when you need to sell.

Investing in gold securities is not unlike investing in any other security except prices may move contrary to the stock market.

This is not true in each case, especially when investing in gold mining companies. In this case, the price of the stock may reflect the company’s financial health and market position more than the price of gold.

Investing in gold, whether the physical metal or gold-related securities, is a complicated decision and not one to enter lightly.

If you do decide to buy actual gold, make certain you are buying from a reputable dealer.

Most financial experts suggest that you should not have more than 10 percent of your assets in gold.