In 2007, Finance Minister Pedro Solbes made a huge mistake. In fact, Solbes’ error may have played a part in Spain’s persistent economic crisis that began in 2008.

In an article posted by bullionvault. the man who was responsible for Spain ’s finances sold around 25% of the country’s gold reserves. According to Solbes, the reason for the move was to shift Spain’s foreign reserves into fixed-income instruments.

What we aim to do is to sell gold, an unprofitable asset, to reinvest in bonds, which are more profitable, said Solbes.

Now, anyone who knows gold’s history and power as hedge to a failing economy knows just how brash Solbes’ words are. Gold is never an unprofitable asset and it is quite possibly the most important treasures of any country.

Just take a look at the graphs below. With a mindset like Solbes’, it’s no wonder why Spain is still struggling to make ends meet. Apart from the electricity cuts due to the economic crisis, the unemployment rate and debt of the country are at an all-time high. (Graphs source: Quartz )

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This is why it’s important to understand how to use gold. Even if you have huge amounts of gold reserves, you’d end up suffering the same fate as Spain if you’re not smart enough to use them.

The first rule of investing in gold is to never, ever sell it unless absolutely necessary. This is in line with the mantra of Germany’s Bundesbank, which has the second largest gold reserves in the world. Bundesbank said that gold is for the long run and they wouldnt be selling any of their reserves soon.

Using Gold As A Hedge

Harnessing gold’s power takes time and if you’re an investor who believes in the power of the precious yellow metal, then you should never do what Spain has previously done. Gold can be used as hedge to a weak economy and if you want to use the commodity for that purpose, invest in owning physical gold bullion. There are two ways to do this. First, you can own gold traditionally by buying from a broker. Second, you can buy gold via the e-gold form of trade. An innovation of modern trading, e-gold is a much cheaper way of owning physical gold since there’s no middle man involved in the transactions.

Investing in gold can yield returns as big as 130%. This is what gold investors have enjoyed back in 1999 and Spain might have forgotten about that fact.

Using Gold In The Diversification Of A Portfolio

Apart from using gold as wealth, the commodity can also be used to diversify your profile. If you want to have an impressive portfolio, invest in gold stocks. Invest in gold certificates or ETFs and place no more than 30% of your assets in it. Investing in gold stocks is not only profitable but also convenient since there are a lot of markets for it. Some stocks even allow investors to start trading for as little as $20.

Remember, gold is only unprofitable for people who don’t know how to use its power correctly. Spain may be regretting its decision now in selling some of its gold reserves and everyone should learn from this mistake.