Prices-Gold.com

If the so-called ‘gold bugs’, investors who believe passionately in the long-term value of buying gold, are right, then this could be a good time to add a little glitter to your portfolio. Over the last five years the price of gold has more than doubled from US$250 to US$574 a troy ounce and it is still nowhere near its all time 1980 high of US$850 a troy ounce. In fact, there are many who believe it could double in price AGAIN!

Just because gold is cheap now when compared to 25 years ago doesn’t automatically mean that it is a good investment. However, there are three sound reasons to believe that prices will continue to soar.

Firstly, the growing economies of Asia and the Middle East have resulted in a huge surge in demand – especially for gold jewellery. For proof one need look no further than global gold jewellery sales, which increased by 19% last year.

Secondly, a rising number of private investors all over the world have been putting some or all of their savings into gold as a hedge against economic or political instability and, in some cases, war. When investors feel the future is uncertain (as many appear to at the moment) demand for gold always surges. This is doubtless in no small part due to the fact that the price of gold tends to move in the opposite direction to virtually all other conventional asset classes – making it ideal when investors wish to diversify.

Thirdly, the mining industry can’t keep up with demand. Last year’s figures show that in excess of 4,000 tonnes of gold were purchased, but only 2,500 tonnes were mined. What’s more, production is falling by an average of 4% a year and it will take the industry anything up to ten years to increase supply by the required volume. In the past, when demand outstripped supply, the shortfall was met by many of the world’s central banks. No longer. Countries, which had been disposing of their gold reserves, have slowed down sales or even stopped selling altogether. Some central banks, notably those of Russia, Iran and China, are actually believed to be buying bullion.

Although I believe that gold prices are likely to carry on moving upward, I would only suggest buying if you already have a range of other investments including shares, bonds and property. Furthermore, I wouldn’t necessarily advise buying gold coins or gold bars. The idea of owning a little ‘hoard’ may seem attractive, but gold in all its forms is expensive to ship, store and insure. Instead you may like to consider investing in one of the various gold mutual funds. These offer a cost-effective, convenient and potentially more lucrative way to benefit from any increase in gold’s value.

A good example of what a mutual gold fund has to offer is the top-performing Merrill Lynch Gold & General Fund which has produced an average annualised gain of 33.9% over the past five years and which is up around 1000% since its launch in 1988. The bulk of the UK£855 million fund is invested in gold mining shares. Obviously, gold mining shares rise in line with the value of gold. Your risk is diversified and you can leave it up to the fund manager to choose the best opportunities. There are plenty of funds to choose from and you can pick a fund that matches your own objectives. One fund might aim to track the price of gold, for instance, another to track one of the various market indices such as the FTSE mining index.

Speaking of the FTSE mining index, which outperformed the FTSE all-share index in 2005, if you have plenty of capital at your disposal an alternative option would be to buy a portfolio of individual mining company shares. On the upside this will give you greater control and involvement. On the downside you will have to decide which of the hundreds of different mining company shares to buy.

There is one further possibility worth considering. Invest your money in one of the exchange-traded funds (ETFs) for gold. An ETF is listed on the stock market and allows you full exposure to the price of gold, without actually having to take delivery of the bullion. The fund buys and holds the gold, while the investor holds ETF shares. The world’s biggest ETF is Exchange Traded Gold (marketed under different names) which holds 431 tonnes of the yellow metal. This is more than the Bank of England’s reserves.

One of the most senior industry experts in the world, Robert McEwen of U.S. Gold, was recently reported as predicting that gold prices may reach US$2,000 an ounce by 2010. If he is right, you could be kicking yourself for not getting into the market whilst prices are still relatively low.

Annual Gold Prices for the past 5 years show that in 2005 the gold price had the biggest annual dollar increase, with an increase of over $80. A chart of prices over the last 30 years looks like a roller coaster.

Exploration and development expenditures include all of the costs associated with manpower and activities such as geologists, contractors, engineering, drilling equipment, metallurgical testing and economic feasibility studies.

Gold mining requires the use of specialized facilities and technology. Gold prices can fluctuate widely and are affected by numerous factors beyond the Company’s control. Gold is measured in Troy ounces, which weigh 10 percent more than the ounces used for potatoes and feathers. It’s often found in rock that contains sulfides, which when exposed to oxygen, water, and specialized bacteria produce highly acidic water.

Gold’s attractive appearance and malleability mean that it can be enjoyed as jewelry or other ornamentation and yet is easily convertible into coin or bullion. Where the price is presented in currencies other than the US dollar, it is converted into the local currency unit using the foreign exchange rate closing price on the same day.

Gold prices have surged past the $500-an-ounce mark, and more gains are predicted as investors look to protect themselves against inflation fears. They historically rise when faith in paper currencies erodes, as investors seek the intrinsic value of gold to protect themselves from inflation. Gold has continued to show strength in Asian and European trading.

Like all prices, the gold price reflects not only the inherent value of gold, but also the relative strength of the currency in which it is quoted. Costs are allocated to a stockpile based on relative values of material stockpiled and processed using current mining costs incurred up to the point of stockpiling the ore, including applicable overhead, depreciation, depletion and amortization relating to mining operations, and removed at each stockpile’s average cost per recoverable unit. While gold is a more stable store of value than paper currencies, it still remains a market in which governments have a heavy presence. Thus, taking into account the ever-shrinking value of the dollar, the real price of gold has hardly changed in a century.

Since 1982, average annual gold prices have stayed between $300 and $450 per ounce. Record upside price potential remains firmly in the hands of investors, with average annual gold prices for 2007 on track to beat the 1981 record of $614.

There are many forms of currency out there, but the one that has stood as an almost universally accepted form, is Gold. People covet gold, people give gold as gifts, people store their hard earned wealth as gold, and I believe that it will continue to stand the longest as the most accepted form of currency in the history books of the generations to come.

Gold is a good investment for those people looking to preserve their purchasing power in this unstable economy. As a currency devalues, it loses something, but people often don’t understand what exactly it is. People throw around the word inflation, and they are right inflation is occurring, but that is what is happening to their money not what it is losing. As inflation occurs the dollar is losing it’s purchasing power. Purchasing power is quite simply the amount of stuff your dollar can be traded in exchange for. Current gold prices are the most accurate reflection of the exact purchasing power of your dollar. This flux in purchasing power is caused by what is called an un-backed or fiat currency. This means that there is not a set amount of a valued item that can be redeemed by the currency in question.

Some people don’t realize that as they earn dollars, the purchasing power of their dollar is decreasing by a small amount all the time since we do not have a backed currency; and in this current economy the inflation rate is beginning to accelerate at an incredible speed. Putting your money into Gold is an excellent solution to this problem. Gold has been used throughout the centuries as a widely accepted currency, and often in recent history has been used to back alternative currencies such as copper or silver, both were interchangeable for a certain amount of gold, and in very recent history, Gold backed paper money for a time. Usually when the currencies were backed, the current gold prices were fixed, and that gave a set purchasing power to the relevant currency of the time. In all situations where a set amount of gold was used to back an amount of a currency, that currency held it’s value because gold held it’s value. It is a known and widely accepted fact that the only real way for the value or purchasing power of gold to change is for the supply of gold to increase or decrease. Since the rate of gold being found or being lost is a very steady, the purchasing power of gold remains very resistant to change; but since it is not attached at a fixed price to a currency, the current gold prices will fluctuate, reflecting the current purchasing power of the dollar.

The above reasons are just basic introductions as to why Gold is such a good investment. If you feel that gold is too much of a beginning investment, and that the current gold prices are to expensive for you right now, then a good alternative is silver. It has also been used in many countries as a very reliable exchange medium and it is cheaper to invest in because there is a larger supply of it. Again, it’s purchasing power only fluctuates when the supply of it changes.