What Are the Dangers of Investing in Gold?
During difficult economic times, investors often turn to gold. Gold is seen as a hedge against inflation and a good place to invest when stocks are spiraling downward. However, investors face several potential dangers when investing in gold. These concerns apply to gold stocks, gold funds, gold coins and gold bullion.
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Ups and Downs
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Gold prices tend to move slowly. This could mean waiting years for the price to rise a significant amount while other investments outperform gold. It could also take a long time to recover from losses if the price of gold falls.
Gold and the Dollar
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The price of gold is linked to the value of the U.S. dollar. As the dollar gains value, the price of gold falls. Likewise, if the dollar shrinks in value, gold prices rise. The problem is that the dollar is notoriously hard to predict. It can sometimes strengthen in a bad economy or dip when business is booming.
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Gold Coins
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Gold coins are a popular way to invest in gold, but they come with an expensive premium. Gold coins can cost many times the value of their gold content because of the collector value. The U.S. government has not issued gold coins since 1933, making them old as well. Collectors are willing to pay far above face value to own them.
Gold Rounds
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Gold rounds resemble coins in shape and design, but are not actually money. They were never monetized by a government mint so only have value for their gold bullion content. Examples of gold rounds are the American Eagle, Canadian Maple Leaf and South African Krugerrand. Gold rounds are sold at a premium of at least 20 percent over the gold bullion value. This is to pay for the cost of manufacturing and marketing them. Much of price you pay is not for gold at all.
Gold Bars
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Gold bars are sold with a much smaller premium than gold rounds since they have no artwork. Large quantities of gold bars can be difficult to store. They are heavy and bulky. They also can be hard to sell in large quantities. Gold bars are not as popular to collect as gold coins or gold rounds.
Government Intervention
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The government could declare private gold ownership illegal. It has happened before. President Franklin D. Roosevelt did it in 1933. Americans were not allowed to own gold bullion again until 1975. While this in not likely to happen again soon, it is a possibility.
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