Why Buy Gold?

People have been investing in gold for centuries. Although the gold market is susceptible to speculation like any market, it has historically proven to be a good harbor against political, economic, and social crises. For the most part, gold holds its value over time, making it the most popular precious metal purchased for investment purposes in the world.

Although there are many alarmists out there that exaggerate current dangers to the domestic and world economy, there are many legitimate reasons that justify anxiety about the value of the dollar. Congress almost defaulted on this nation's debt thanks to partisan fighting in Washington. Standard and Poore's rating agency announced the first credit rating downgrade in U.S History-from an AAA to an AA+. And however you feel about government spending and its role in the health of this country's economy, there's no denying that spending increases inflation. People have good cause to worry.

Unlike almost every currency out there, gold has a real tangible value that is less affected by the ups and downs of the world economy. The value of the dollar-like every other currency out there-erodes over time. Just ask anyone age 70 or above who will gladly tell you all the things they were able to buy with a single dollar just a few decades ago. In stark contrast, the amount of gold needed to buy a barrel of crude oil has stayed almost static. Today's price is very close to what it was 50 years ago. What other currency can claim something similar?

Besides gold, silver, and other precious metals, other currency's value can essentially be understood as imaginary. When you use your U.S bills to fill up your tank at a gas station or buy your groceries at the supermarket, everyone involved in the transaction is acting on faith. We act on the assumption that the U.S Treasury can back up the value of the dollars we exchange for goods. However, once the United States officially got off the gold standard in 1973-no longer defining dollars in terms of gold-this has become an even bigger leap of faith. It used to be that you could go to your bank and exchange your money for its value in gold. Although abandoning the gold standard has mostly led to economic growth and increased opportunities, a side effect continues to be inflation.

Since gold and other metals cannot be created out of thin air, they have the potential to safeguard your purchasing power. This is because gold can retain its value over a long period of time and tends to appreciate over time, not depreciate. For the last ten years, the price of gold has consistently risen against the U.S dollar and other national currencies, without exception. 2010 alone saw gold rise 29.8% against the U.S dollar. Let's say you purchased $10,000 worth of gold January 2000. By 2008, the gold would have doubled in price, hovering around $20,000. In July 2011, this same amount of gold would have more than tripled in value, priced at around $37,000. This climb is expected to continue to rise, while the value of the U.S dollar and national currencies around the world will slowly depreciate like they always have.

The demand for gold also continues to grow. Investors are keeping their eye on emerging countries. As the world's poorer nations become more and more affluent, they are beginning to buy a variety of different commodities, among them gold. International central banks are also dipping into the gold market, buying gold for their reserves in the place of cash.

Since gold prices are incredibly high right now, it can be easy to assume that the bubble is about to burst. With demand for gold and inflation both on the rise, however, gold is a sound investment. Most invest firms will recommend that at least 10% of your portfolio consist of gold. Investors around the world expect gold to rise for at least the next few years, so it is important to diversify your portfolio and begin to average into the gold market.