Why Invest in Gold?
Gold, a precious metal popular in jewelry, is also a widely used investment. In fact, as investors have become more knowledgeable about gold investing, gold trading platforms (particularly online gold trading platforms) have proliferated, making it easier than ever to invest in gold.
There are two reasons to consider investing in gold:
A) Historically, gold has been considered a safe haven in times of economic, geopolitical and financial instability. Inflation and currency devaluation are also positive environments for gold, because it holds its value.
B) Gold investing allows investors to gain financially from increasing gold prices (or decreasing gold prices, in the case of short sellers, but more about that later).
Some of those beneficial gold-investing conditions are present today Including:
First, the world economy has slowed dramatically, with the United States in the midst of a downturn unlike any seen since the Great Depression.
Second, political skirmishes continue around the world: This is evidenced by large numbers of workers in China’s Pearl River Delta region being out of work and the growing problem of drug cartels in Mexico close to many of the manufacturing centers. Furthermore, countries such as the Ukraine are facing problems with their economy that could stall further advances in democratic reform. Even wealthy regions of the world such as the middle east are facing economic problems as a result of the drop in oil prices.
Finally, there are the financial markets, which have plummeted in 2008 and 2009: On February 23, 2009, the Dow Jones Industrial Average and the S&P 500 Index both plummeted to near 12-year lows. Investors are concerned.
At the same time, gold traders are a bit mystified because the S&P/Citigroup Gold & Precious Metals Index, a widely used measure of gold prices, is down 45.46% as of December 31, 2008.
But this simply means there is considerable room for improvement—and significant opportunities for gold investors. Just consider the ratio between the Dow/Gold Ratio, which is calculating by dividing the Dow Jones Industrial Average by the price of an ounce of gold. In the past century, many major economic crises—including the Great Depression and World War II—caused the Dow/Gold Ratio to plummet. So, a low Dow/Gold Ratio is widely considered an indicator of how bad a recession is. And during bad recessions, many investors have tried to preserve their assets by investing in gold, thereby driving up the price of gold. As of February 2009, the Dow/Gold Ratio was below 8, which is historically very low.