The price of gold has risen steadily for more than 30 years, and some economists forecast this trend will continue. In view of the current trend and future predictions, buying gold is an attractive option.
Background
Gold has been used as money between individuals and between countries for more than 5,000 years. Gold coins were first minted around 610 B.C. As economies grew and international trade expanded, it became too cumbersome to physically transfer gold between countries; paper money, also called fiat money, began to circulate.
Initially, each country’s paper currency unit was equal in value to a specific amount of gold. This fixed value, known as the gold standard, was agreed to by each government, and the currency could be exchanged for physical gold held in government vaults. In the 1900s, as governments faced higher expenses but limited revenue, more paper money was needed. Governments were forced to either buy more gold to back the additional money being printed or go off the gold standard. Governments began to abandon the gold standard, which allowed them to increase the money supply at will. It also allowed the price of gold to fluctuate according to market forces.
Gold Has Intrinsic Value
Gold, along with silver, platinum and palladium, is considered a precious metal. A metal is considered precious because of its scarcity, industrial value or history as an investment. Although it does have some commercial and industrial uses, such as jewelry and in electronics, gold is primarily used for accumulation rather than consumption.
Gold does not tarnish, decay, or have different levels of quality. It has a high liquidity level and can be easily converted to cash. It holds its value in good and bad economic times. Because the gold market operates globally, there is always a ready supply of buyers and sellers. In the current financial climate, there are several reasons why buying gold is a good decision.
Hedge Against a Declining Dollar
Once used as a medium of exchange, gold has been replaced by paper money. Paper currency derives its value from the economic health of a country. When unemployment is high and the government spends more than it takes in, the government incurs debt. As the debt increases, the value of the paper currency declines.
When a government has a large national debt, it must make interest payments that can run into billions of dollars each year. To make these interest payments, as well as finance its other expenses, the government prints more paper money. If a government defaults on its debt, its paper money could become worthless.
Hedge Against Inflation
Inflation occurs when more money is put into circulation; this leads to a rise in the price of goods and services. Hyperinflation occurs when people lose faith in the paper currency and swiftly begin to exchange it for something that has a tangible value. Gold is a hedge against inflation because as the price of goods and services rises, so, too, does the price of gold. It is a barrier against hyperinflation because it is a tangible asset that will increase in value as inflation increases.
Diversification
The adage "Don’t put all of your eggs in one basket" reflects the theory behind diversification of investments. If an individual’s assets are all in the form of stocks or shares in a company, there is a danger everything could be lost if the stock market crashes or the company goes bankrupt. Gold does not depend on a company to make a profit, a bank to pay interest, or a management team to perform well. With gold, the investor takes physical possession of the asset.
Supply and Demand
When goods or services are scarce or in high demand, the price of those goods or services increases. Gold follows this market principle. In addition to established private investors buying gold as a hedge against inflation and a declining dollar, the demand for gold is fueled by governments and a growing international middle class. Central banks are buying gold to shore up their reserves and as a protection against a declining U.S. dollar. The flourishing middle class in countries such as China and India has led to an increased demand in the medical and industrial use of gold, an increased demand for jewelry, and an increased demand for gold as an investment.
At the same time the demand for gold is increasing, international gold production is declining. Factors such as government taxes and fees, increasing labor costs and disputes, and poor infrastructure and environmental issues are among the reasons for a decline in gold production. In addition, much of the surface gold and gold that is easy to reach has been mined; mining the deeper gold is more difficult and time-consuming and leads to increased production costs. Increased production costs, in turn, lead to reluctance by mining companies to spend money on drilling and exploration. Even if new gold sites are discovered today, it takes an average of seven years before a site actually produces gold.
The Price of Gold
The price of gold changes on a daily basis in reaction to business news, government legislation and international events. Although the yearly trend over the last three decades has been upward, on a daily or weekly basis, the price may decline. The current price can be found on the New York Stock Exchange, in virtually every daily newspaper and at online gold sites.
The price of gold listed on the New York Stock Exchange is called the market price or spot price. The difference between the spot price and the selling price is called the premium; it is also referred to as the spread. The premium includes a profit for the seller, production and minting costs, and insurance and shipping costs. The premium can change based on the demand for and availability of gold, but it is usually between 4 percent and 6 percent for a 1-ounce gold coin. For a 1-ounce gold bar, the premium is usually between 0.9 percent and 4 percent. Before purchasing gold, the buyer should be familiar with the current spot price so that he or she can determine whether the seller is asking a reasonable premium.
Types of Gold
Gold can be bought in several forms: bullion, coins or jewelry. Each form has advantages and disadvantages.
Gold Bullion
Gold bullion takes the form of bars, ingots or plates. This type of gold is at least 99.999 percent pure. The most popular bars are ¼ ounce, ½ ounce, 1 ounce, 10 ounce, 100 grams and 1,000 grams.
The primary advantage of buying gold bullion is a lower premium. One disadvantage of buying gold in the form of bullion is a lower resale value. Another disadvantage is the buyer is not always able to easily verify the weight and purity of the larger bars, ingots or plates. In addition, bullion is not easily converted to cash and is difficult to transport and store.
Gold Coins
Gold coins are also referred to as gold bullion coins and include coins minted by a government or private mint. Examples include the American Gold Eagle, the South African Krugerrand, the Chinese Panda and the Canadian Maple Leaf. Bullion coins are for investment purposes and are not circulated as legal tender.
Buying gold in the form of bullion coins has several advantages, one of which is that the value of the coin is easily determined. Coins are easily transported and stored and also are easily converted to cash. In addition, the value of the coin is not reduced if the coin is scratched or marred. The disadvantage of buying gold bullion coins compared to a bar or ingot is a higher premium; the higher premium is often due to a higher demand for coins in general or the demand for a coin from a specific country.
Gold coins also take the form of numismatic coins. A numismatic coin is collected for its aesthetic or historical significance rather than for the value of the gold in the coin. A numismatic coin can be a coin issued as legal tender or a coin issued to commemorate a person or event. Examples of numismatic coins are gold coins minted in the United States between 1849 and 1933. When buying numismatic coins, a collector should be aware of any hairline scratches or chips on the coin that can decrease the coin’s value. Another disadvantage of numismatic coins is the market is smaller than the market for bullion coins.
Jewelry
A third method of buying gold is in the form of gold jewelry. The amount of gold in jewelry is measured by the karat grading; the lower the number, the less gold is in the jewelry. The purest form is 24 karats. When jewelry is purchased for its investment value, the karat grading should not be less than 20.
It is easy to buy and take possession of gold jewelry. However, the value of a piece of jewelry is often due more to the arrangement of gemstones, quality and craftsmanship than to the gold content. In addition, the value is subjective rather than objective, and jewelry can easily be lost, misplaced or stolen.
An individual’s reason for buying gold helps determine the type of gold purchased. Someone concerned about paper money becoming worthless because of a government default may opt for coins; a jeweler may prefer to buy gold in the form of bullion and melt it down into individual pieces of jewelry.
Protection When Buying Gold Online
When buying gold on eBay, buyers should be aware of insurance protection and any shipping or return fees that may apply. They should also review the history of the seller. eBay has a feedback mechanism that allows buyers to rate the seller in terms of how accurately the item was described, how quickly the seller shipped the item and whether any problems arose during the transaction. The seller’s rating establishes a history of being able to fulfill their contracts; this may be especially useful when buying gold jewelry because there is no other way to verify the gold content other than relying on the seller’s word.
Finding Gold on eBay
Buying gold on eBay.com is a safe, simple and swift solution for new investors in the gold market as well as for seasoned veterans. Remarkable deals can be found on eBay for bullion bars, bullion coins, numismatic coins and jewelry. One of the advantages of buying gold on eBay is that fractional coins, such as ¼ ounce or ½ ounce, are not always available at coin dealer shops. eBay is an ideal resource for numismatic collectors because of the vast number of coins available from private collections. For those looking to buy gold jewelry, eBay features rings, necklaces, watches and bracelets.
To find gold on eBay, go to eBay.com and type the word gold in the search line. Search results will include gold bullion, gold coins, and gold in fashion jewelry, among others. Clicking on one of the search results will lead to other options. For example, clicking on gold coins presents the subcategories of world coins and U.S. coins. From there, it is easy to browse among the items offered on eBay. Clicking on an item reveals details about the item.
Conclusion
With the current strong price of gold and the prediction for the price to substantially increase, now is a good time to buy gold. An unstable stock market, increasing government debt and anticipated inflation all make gold an attractive investment vehicle. Buying gold on eBay is a secure way to safeguard your future.
