Gold is one of the rarest elements on the earth. As such, it is the perfect medium for exchange on the face of the earth. Gold has been used by almost every society as money and coinage. What makes gold so valuable is that it can not be replicated. Alchemists tried for centuries to make gold from other "heavy elements" like lead.
Gold is also a token of wealth. Monarchs, Wealthy Merchants and Aristocrats have used gold to ornament their hair, adorn their garments and as jewelry and art. Gold plateware was also used by the very wealthy at special banquets and feasts.
Today, gold is most popular in jewelry, like bracelets, necklaces and rings. It is no longer used as currency, but it makes an excellent investment none-the-less. Gold traded for $290 an ounce prior to 9/11 and that same ounce of gold is now worth over $850 and rising! That's almost a 300% return on investment! Compare that to any stock or bond investment and you will see that gold literally outshines them all!
Smart Investors know that gold hasn't even come close to its price potential. Paper currencies, like the dollar, have been gutted by over-printing which will lead to double-digit inflation and continuous loss of earning potential in the future. In fact, CITI financial came out and stated that gold will exceed over $2,000 per month as the dollar continues to loose its value.
Due to the fact that, the US govt. pays interest on its currency in gold to the Federal Reserve, a vast majority of gold holdings lie within the Fed's vaults and will never see the light of day. It takes 5 years to bring new gold mines into production, and even then, high-producing mines are almost non-existent. In fact, all of the existing gold in the world would fill a three story building the size of a tennis court!
Although banks can dump their gold holdings to bolster the dollar like they have done in the past, global insecurity simply means it is no longer possible for supply to keep up with demand! Amazingly enough, it is not a far reach to see one ounce of gold reach $5,000 to $10,000 per ounce when the dollar panic begins and trillions of dollars seek out a safe haven.
Consider all of the alternatives. Real-Estate, the most highly favored investment lost almost 30% of its value over the past few years and the search for a bottom continues. Because of a soft market, things will only get worst. Lower interest rates are often unreachable because of the difficulty of refinancing lower valued homes.
Lower Interest Rates have helped make existing bonds more attractive, but not even the best bonds are keeping up with inflation. In fact, the devaluation of the dollar will favor gold even more as foreign investors stay away from unstable government bonds and money market instruments.
We already discussed the stock market, but the bigger issue is the health of corporate America. Gold is no longer the hedge against the stock market. It is the only sound alternative. Earnings and Consumer Spending will only continue their downward spiral as the recession continues to worsen. Profits give corporate stocks their value. Lower profits will only force more and more investors into gold.
Then their is the gold jewelry market. While more and more individuals are selling their gold jewelry to generate immediate cash. It could be argued that just as many, or more are purchasing gold jewelry because they see it as a purchase that will keep, or even increase its value over time. Some countries, like India, also view gold jewelry as the best way to hold onto wealth during times of instability. If their is a better investment out their than gold, it hasn't presented itself.
