Protection with Gold / Uses of Gold

Gold is a very unique commodity. Unlike other precious metals, the value of gold is not tied to its usefulness or industrial applications. Platinum, palladium, and silver are primarily produced for consumption, while gold is mined for accumulation. So for all intents and purposes gold is money-accepted around the world as a store of value. Paper currency, the other standard store of value, is falling precipitously. Meanwhile, gold continues to soar to new values. Here are some of the ways you can use gold to protect your financial future:

Hedge against Inflation

Gold prices are difficult to predict at any given point, but a very good marker has always been inflation. Historically, as inflation goes up, so does the price of gold-and we are seeing this today. As everyone knows, our current recession has led to a significant amount of inflation, and it will continue to rise. Even with the government stepping in to bail out banks like Goldman & Sachs, it will be difficult to curb inflation and protect the precarious position of the dollar in the face of so much debt. The U.S has become the world's biggest debtor, with a well-publicized trade deficit. However, as the dollar falls, gold and other commodity prices continue to soar. Since gold is primarily bought and sold with U.S dollars, any decline in the value of the dollar will cause the price of gold to rise.

Safe Haven?

Even in this economic climate, gold continues to outperform many other commodities. A lot of this has to do with the simple logic of supply and demand. There is a very limited supply of gold. All of the world's gold could be stored in the space underneath the Eiffel Tower. Gold mining requires a significant investment, and seven years to set up. Gold production peaked in 2000 and has not gotten close to that level since then, leading many experts to believe that we grow nearer and nearer to reaching "peak gold." Also, countries that are emerging as powers in their own right-China, India-are buying gold in mass quantities without selling any of it. As these countries continue to grow, they encourage their citizens to accumulate bullion. All of this makes gold the ultimate "crisis commodity."

When confidence in the government is the lowest people can return to gold for its protective properties. While the government prints money wildly in an attempt to rescue themselves from the hole they find themselves in, the dollar plummets. Luckily gold is more than just a piece of paper. No matter how low the dollar falls, gold will always maintain an intrinsic value. It is a preserver of wealth in times of instability. This is because it often takes a financial crisis like the one we continue to face today to remind investors of the reliability of gold.

Diversify Your Portfolio

A diverse portfolio is a good portfolio-capable of improving overall performance. In order to reduce your risks, you should find investments that are uncorrelated with each other. Most stocks and bonds are closely correlated, but gold reacts to an entirely different set of market forces. This is because gold is a powerful negatively correlated asset. As stocks goes down, gold goes up. It can protect you against currency devaluation and act as a hedge.