Investing in Gold
Why Invest in Physical Gold? Over the past ten years, gold has shown investors a minimum of a 15 percent annualized return or better every year. In 2010, gold increased by nearly 29 percent. On December 7th, 2010, gold hit an all-time record high of $1432.50/oz . Goldman Sachs recently reinforced their forecast that gold is likely to hit $1700/oz. by year end-2011. 
Other analysts on Wall Street are just as bullish. There is, of course, speculation that the recent bullish environment surrounding gold is creating a bubble on the brink of bursting. However, when one considers the fundamentals driving the gold market, and the fact that ‘smart money’ on Wall street continues to sink billions of dollars into this asset, it is clear that this bubble is not going to burst – at least not anytime soon.
There are many reasons why investors diversify their portfolios with physical gold.
Hedge Against the Declining Dollar
The dollar was originally backed by gold. That is, until 1971, when the dollar became a fiat currency with no backing. Today the U.S. dollar continues to face downward pressure.With the U.S. in nearly $14 trillion dollars of debt owned in treasuries by other major countries such as China, Japan, and the European Union, issues with the dollar are only going to remain as the debt crisis worsens. Gold and other precious metals are the best way to hedge against this because they hold physical value, as opposed to the dollar’s perceived value.
Hedge Against Inflation
Inflation has been the most influential factor driving the price of gold, and gold is the ultimate hedge against inflation. 
The dollar’s decline in value and the Fed’s monetary policy are two of many factors affecting inflation. Most significantly, the Fed’s latest announcement of its second round of quantitative easing came in $100 billion higher than Wall Street’s predictions. With $600 billion of debt purchasing to occur by mid-2011, inflation will continue.
Gold as a ‘Safe Haven’
Investors have always flocked to gold as a safe haven and hedge in times of uncertainty and crises – bank failures, low and declining interest rates, war, economic crises, etc. The stock market is a good example to define this statement. Stocks perform best in a stable market climate of confidence and certainty, while the opposite applies to precious metals. Stocks have significantly gained value in comparison to gold over the past hundred-plus years. However, when fear drives down the stock market performance, the value of gold quickly rises. In bear markets, the Dow/Gold ratio declines to a near 1.0x level, demonstrating weak confidence in the economy and stock market, and restored levels of value found in gold. This has been the case since the recession started in December 2007, as the ratio continues to decline. Gold hit $1000/oz for the first time in history in March 2008 as fears of what became today’s Investing in Gold recession spread. When seeking an asset to hedge and diversify against overall economic crises, gold consistently proves to be a safe bet – especially in relation to the stock market and other financial investments.
Portfolio Diversification
The top money managers on Wall Street believe that it is prudent for investors to consider having at least 10 to 20 percent of their portfolio diversified in physical precious metals. This alone is simply to serve as a hedge. When diversifying a portfolio, one wants a variety of investments that perform well in different industries and economic environments. If you were to have all your investments in paper assets, that is, stocks, bonds and mutual funds, you would have no hedge against potential bank failures and weak market conditions. Gold has proven to out perform all other investment asset classes over the past 10 years. The graph to the right 
shows gold’s performance in comparison to the average annual returns from stocks, mutual funds, and real estate. If you had invested $100,000 in gold bullion in January 2010, you would have made nearly $26,000 in profit as of the beginning of November 2010. If you had invested that same amount in rare gold coins, your profits would have been even greater. Portfolio diversification in physical gold and other precious metals have proven to be the ultimate hedge against the current risk in the market and other investment options.
Investing in Gold: Physical Asset Vs. Paper
There are many reasons why owning physical gold vs. an ETF (exchange traded fund) has its benefits. Precious Metals Brokerage Group believes that having direct possession of your investments provides more value and security than owning an equal amount on paper.
Let’s start with Fractional Reserve Banking: When you own gold, silver, or other precious metals as an ETF, you are exposing yourself to a financial instrument that only has a fraction of its paper assets backed by the physical precious metal. A common fear amongst investors is that financial institutions wouldn’t be capable of delivering the asset if investors were to demand conversion of their paper assets into the underlying physical precious metal. Owning the physical asset would provide complete protection against this scenario.
Another great advantage to owning physical gold is that much of it is exempt from many government rules and regulations. For example, some rare coins, as well as junk silver bags under $10,000, are tax exempt and non-reportable, therefore making them essentially private assets. However, ETFs are subject to all government and securities regulations.
*When considering diversifying your portfolio in physical precious metals, it is important to conduct your own due diligence to decide whether investing in physical precious metals is right for you.
Precious Metals Brokerage Group values working with each individual investor to help in understanding how to invest in physical precious metals. Call us today to learn more about the benefits of investing in physical precious metals. Our account executives are available Monday through Friday, 7am – 7pm PST. Call us toll free at: 866-775-3131
