One of the best reasons to buy gold is because gold serves as a hedge. For those who don’t know the term hedge, a hedge is a financial device or trading position that allows you to minimize risk or exposure when committing to a particular purchase with a financial instrument.
In regular people (aged 50) terms, it’s like investing in both the careers of the Bee Gees and Devo because you’re not sure whether disco or the nascent punk movement will be successful. If you invesed some money in both, you could win really big, but balance your portfolio by betting some on both, so regardless of which way the industry goes, you’re in. This is a hedge. A hedge helps to balance a financial position. High speed rail AND aviation, for instance. Investments in beef AND pork.
In younger people terms (under 40), it’s a maybe Madonna vs. Nirvana type question…you’re not so sure pop will continue to surge, so maybe you invest in the newer music form, grunge…
And for people under 30, I guess Beiber vs Daft Punk is a good reference. But since you don’t have any money to invest in gold anyway, check back when you’re 50 and out of debt. Good luck. Though my sense is most people under 30 don’t realize the implications of debt anyway…so we’ll just leave that demographic to their own devices.
As for the rest of you, hedge in this case means two things: A financial hedge because the dollar could eventually decline in value to near zero and a survival hedge because…well, because the dollar could decline in value to near zero.
In the first case, if your retirement nest egg is in stocks (measured in dollars) or bonds (also measured in dollars) or cash as most IRAs and 401Ks are, you’ll be out of luck if the value of the dollar declines.
And the value WILL DECLINE. It’s simply a question of when and how much. But each year that you have dollars is a year you lose money. So for instance, in 2011, inflation was (according to the Bureau of Labor Statistics Calculator, here approximately 3.8%, so 1000 dollars in 2011 has the same buying power as 1138.
Inflation is one of the reasons to buy gold. Gold acts as a hedge against inflation. Gold will hold it’s value. It almost doesn’t matter what happens to the dollar, gold will still maintain it’s value. It has for centuries…but the easiest comparison is to check the price of a batch of goods from say, 1905 (just prior to the first World War) compared to any other date…choose one…choose today for instance…
One ounce of gold (then worth about $20) would buy you a nice suit, a great dinner, an evening of entertainment and a fine hotel room…and you’d still have a little money left over for breakfast…don’t believe me? Here are the costs of various items from that period. Compare for yourself:
1905 Costs Associated with an Evening Out on the Town
Men’s shoes, “All America,” $2.50-3.50/pair
Men’s suits, $3.98-9.35/each
Men’s shirts, $.35-.75/each
Hat, men’s, derby, $.85-1.50/each
Recreation & amusements
Theatre ticket, “Flight of Princess Iris,”$.35.75/ticket
Dinner, Speedwell House and Restaurant, seven courses, $.35/person
Compare that to today’s prices, where an ounce of gold is worth approximately $1375.00
2013 Costs Associated with an Evening Out on the Town
Men’s Shoes, $100.00/pair
Men’s Suits, $200-750.00/each
Men’s Shirts, $20-75/each
Hat (does anyone still wear hats)
Recreation & amusements
Theatre Tickets “Book of Mormon” Jones Hall, $100.00
Hyatt Regency Downtown, Single Room, $239.00
Dinner, Uchi Sushi Bar, Houston, TX $75.00
In the 1905 example you could have a lovely evening for around 20 bucks and you were a big man on campus.
Jump forward to 2013 and you can have a big night on the town, dressed up nicely and you can still do it for less than the price of one ounce of gold. Just like you could over one hundred years ago. Gold hasn’t changed in value, the DOLLAR has changed. The dollar has become worth less…say it again. Worth-less. Worthless.
Houston Gold Merchants is a gold buyer and a gold seller. We’ll help you hedge against inflation.