How to Approach Gold

Since I’m sure that most of you have been inundated with the commercials about gold and silver and whether or not to buy such assets, I’d rather not discuss this topic as if I am trying to commercialize this concept.  Rather, I would like to discuss gold and silver from the perspective of two different investing approaches.  When you look to buy gold, you can approach it from the angle of a “trader” or an “investor”.  In my opinion, gold and silver purchases are often being made these days from the “trading” perspective.  Most of the commercialization of” buying gold” appears to involve wording that describes how gold will appreciate in value over a short period of time.  For example, one commercial might indicate that gold (which at the time of this writing is selling at $1781) may rise to the price of $2000 or $3000.  I think that when most people see this or hear this, they begin thinking about gold like it is a stock that goes up and down, and they think about making money in the short term.   Such an approach would be treating the gold transaction as a “trade”.


The other approach to buying gold is that of treating it as a long-term investment.  This way of investing in gold is actually a hedge against inflation.  You are approaching gold as a solid asset which has intrinsic value.  To me, this is the most practical approach to investing in gold or silver.  Inflation is coming.  I remember the definition of inflation from my 11th grade history class.  My teacher at that time would often teach us some economics, and her definition of inflation was “too many dollars chasing too few goods” which I think this works just fine, and it’s pretty easy to remember.   And this is what Ben Bernanke is actually doing with quantitative easing 3 (QE3).  He’s actually creating money out of thin air and injecting it into the public financial system.  Wouldn’t that be nice if we could do that ourselves?  It’s just amazing to me that this manipulation of our currency can actually occur.  But I digress.


So if you think about this from a logical standpoint, over time, the value in gold in dollars should increase.  Although, along the way, the spot price of gold could be all over the place.  So, I think that when you actually “invest” in gold or silver, the best mindset is that this is an actual diversification of your wealth, and you are not looking to treat your gold as a short-term trade.  Gold and silver should always have some intrinsic value, and in all likelihood, it will have a have a lot of intrinsic value. The thing that you need to decide for yourself is just what percentage of your net worth that you want to have in hard assets with intrinsic value.  You should have at least some percentage in items of intrinsic worth.


Gold can certainly be traded profitably over the short term, but again, I would caution you not to be confused into approaching gold as a short-term trade when perhaps the more natural outlook about gold would be as a long-term investment.  So, one of the things of which to be mindful when looking to purchase gold is that the spot price of gold could go down after making your purchase.   In my case, I would be approaching my gold or silver investment as a long-term investment.  So, if I buy gold at $1781, and in a few months it drops down to 1200, I am not going to sell.  I believe that this would likely be a short term correction, and the eventual price will increase over time. Thus, I would either maintain the current position or add to it.  Again, I’d be looking at gold and silver as a long-term asset and hedge against inflation.  In an upcoming article, I’ll discuss a great technique for investing that can easily be applied to gold or silver investing.  Until then, here’s to your wealth.




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