About Gold Investment
The proliferation of commercials asking consumers to trade their gold jewelry for quick cash is a reflection on gold's desirability as a financial investment. Though countries have used gold as an investment for thousands of years, the expanded, interconnected global markets facilitate the buying and selling of gold for individual investors, as well.
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History
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The expansion of international trade during the early 19th century caused many countries to carry large stores of gold as a form of payment for imports and exports. Under this system, trade deficits were naturally kept in check by its gold stores: If the gold supply became too low, the country focused on selling more exports. Thus, gold provided a natural buffer against steep deficits. Investors today use similar reasoning when investing in gold: if the value of their dollar-backed financial assets becomes too low due to the dollar depreciating, a natural inclination is to buy gold. Gold then stabilizes the value of dollar-backed assets --- if the dollar depreciates, gold appreciates.
Buying Gold
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Many parties sell gold, such as gold dealers, brokers and bankers. When you purchase gold from banks, you typically receive a deposit slip or certificate indicating the amount and quantity. Gold dealers sell bullion and coins and will ship you the physical pieces of gold. Coins and gold jewelry may sell for higher than the market price of gold due to their aesthetic value. Gold sellers also raise the price of gold above the market value to accommodate storage, shipping and insurance costs, depending on the buyer's specifications.
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Market Influences
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Certain economic forces influence the price of gold. Gold prices inch higher when investors grow concerned over the Fed's monetary policies of quantitative easing and lowering interest rates. Both of these policies flood the economy with dollars and, in turn, lower the currency's purchasing power. Overall market stability can also be a factor. Emanuel Barlarie explains in his book, "Commodities for Every Portfolio" that investors value gold as a safeguard for financial investments that take a hit from global events --- Gold prices rise during times of economic uncertainty.
Considerations
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Dave Kansas, author of "The Wall Street Journal Guide to the New Rules of Personal Finance," explains gold is a highly volatile investment. Kansas cites the spike of gold prices in the early '60s when the price shot to $800 an ounce, which is the equivalent to $3,500 in 2011. However, in the '80s the price of gold dropped and remained stable at $200 an ounce for 20 years. Thus, investors in gold should purchase the commodity as a way to enhance their portfolio, not as the sole investment.
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