Think You’re Investing in Gold for the Right Reasons? Think Again

In grade school, we all learn the 5 W’s that you should ask yourself before telling a story. The What, Who, When, Where, and Why. Each of these W’s are essential for accurately describing and understanding a situation. Canadians who are interested in gold investing should also be able to answer the five W’s. Most of these answers are very obvious: Investors in Canada are trying to secure their financial future. That is the who, the what, and the where covered. 2014 is proving to be a good time to invest in gold that will pay off in the future, which explains the when. There’s just one question that remains: the why. At first glance, the ‘why’ is deceptively simple. You want to make money and have a healthy financial future, and that explains it… right? However, gold can be a complex investment and there are things that a gold buyer should know before hand. What seems like a safe bet can turn out to be a mistake in the wrong hands, and a risky move could end up being a windfall. So, why should you invest in gold over something else, and what purpose does it serve? This blog will explain the elusive ‘why’ of investing in the gold market and help Canadians make wise choices.

Investing in Gold During a Bad Economy: Smart or a Mistake?

We live in often turbulent times, and people are always concerned about how they can prepare for the future. Some people take this to the ultimate extreme by storing up on canned food and digging their very own bunker. Most people manage to handle their fears for the future in moderation. They may do things like put some money aside in a savings account for their retirement, stay in shape to stave off issues like heart disease, and spend within their means so that they’re prepared if they suddenly lose out on a pay-cheque or need to repair their car. Many Canadians think that investing in gold to deal with inflation or a declining dollar is a smart choice.  Does this hold up? A report from the Financial Analysts Journal suggests the answer is no. A chart of gold prices was compared to a long term study of year-to-year changes of inflation. Having year-to-year data in regards to inflation helped give experts an idea of how gold would measure up against unexpected inflation. When comparing the two charts, experts got a random cloud of data in return. Another chart that tracked the rolling 10 year return on gold against the Consumer Price Index. Again, comparing the two charts of data returned a random pattern. The price of gold and the economy have no clear relationship, which means you can’t shore up during high inflation or a low dollar by investing in gold. Of course, gold is still a valuable commodity and smart investment – just don’t expect the economy’s ebbs and flows to effect your gold prices too much.

What About an Investment In Case of Hyperinflation?

Inflation is a tough thing to deal with, but there’s an economic term for when there is unexpected, out of control deprivation of a country’s currency. One example of this kind of hyperinflation would be Brazil from the 1980’s through to 2001. One investor saw this long period of hyperinflation coming and bought gold. Was this wise gold buyer vindicated? Not quite – he lost out on a whopping 70% of his purchasing power. This did leave him with a fraction of his original investment, as opposed to a total wipe out, but it was not a back up plan that helps an investor dodge any negative ramifications. Keep this tale in mind if you plan to invest in gold as an answer to potential hyperinflation.

Will There Eventually Be a World Currency?

Everyone knows that currency will change as you cross over borders. If you plan go to shopping in the States, you know that your Canadian currency won’t be any good and you’ll have to consult with your bank about getting American bills. But can gold act as a world currency that extends over borders? Unfortunately, no. Gold prices differ from country to country depending on how much of that country’s gold supply is held by the federal government. If you’re a gold buyer banking on a worldwide currency, you could be in for a rude surprise when you find that there is no universal price for the metal.

So What Is The Purpose of Investing in Gold?

Are your shoulders slumped and are you concerned with the future of gold? Don’t worry. There are still several great reasons to consider becoming a gold buyer! While the above reasons for investment may not work out for you and your finances, the below are solid reasons why you should invest in this precious metal.

  1. Gold has maintained a high value, regardless of outside context. While gold can be less or more valuable depending on outside factors, it never stops being valuable. This makes it a safe investment for people with a long term view. Gold prices are currently through the roof and set to rise even furtherif you’re a gold buyer with your eye on the market, now is a good time to consult the experts.
  2. Creating an asset for a young loved one or child. If you want to create a college fund or gift for a young relative, gold is a great way to achieve these goals and create a wonderful gift.
  3. Portfolio diversification. Some investors who are advanced maintain investments in both stocks and golds. When one drops, the other tends to be strong. Advanced investors invest in gold for a healthy and diverse portfolio.

At EDI Refining, we’ve been helping Canadians buy and sell gold and invest in their future. We’re committed to making sure people have access to options that best suit their needs. For more information about our services, call us today at 1 866 688 3353 or visit us at 15 Progress Drive in Orillia, Ontario. We’d love to have a conversation with you about gold investing and how it can help your future.