What much do you know about Gold?

Im clueless about gold. How does one go about knowing the true value of gold? Unlike shares, or real estate ,the precious mental (i also don't understand why is it that precious) does not generate cash flow! To me it only provides bright golden lights that look good on black people's skin. Ive heard Gold prices touches $1221 per Oz this week, shocked by the raise of this mental, i took look at some reasons why people are buying gold.

Positive on GOLD

+People say the $US dollar is weak and is getting weaker due to national economic policies which don't appear to have an end.

+Gold price appreciation makes up for lost interest, especially in a bull market.
The last four years are the beginning of a major bull move similar to the 70's when gold moved from $38 to over $800.

+Central banks in several countries have stated their intent to increase their gold holdings instead of selling.

+All gold funds are in a long term uptrend with bullion, most recently setting new all-time highs.

+The trend of commodity prices to increase is relative to gold price increases.

+Basic demand and supply of economics suggests that in the world, gold production (supply)is not matching demand. The price is assumed to go up with assumed increase in demand.

+So where does this consumption come about? In India and China, their demand for gold is ever increasing with their increase in national wealth.

+Several gold funds reached all-time highs in 2007 and are still trending upward.

+The short position held by hedged gold funds is being methodically reduced.

+U.S. government economic policies over the past decade have systematically projected the U.S. economy down a road with uncontrollable federal spending and an uncontrollably increasing trade deficits. Both causes the dollar to lose its international value and will increase the price of alternative investments, such as gold.

+With the recent devaluation of many international currencies, the U.S. dollar was the international safe haven of last resort. Some are seeing signs of this ending due to many financial factors, the most important one being a falling dollar.

+There are over One Trillion dollars ($1,500,000,000,000) of U.S. debt owned by foreigners,hence the fall in dollar as it is not backed up by real value but "confidence" of the nation.

+Gold has been a proven method of preserving value when a national currency was losing value. If your investments are valued in a depreciating currency, allocating a portion to gold assets is similar to a financial insurance policy.

Now i'll explore reasons why gold isn't the right investment

-Gold doesn't pay income or interest.
Except for the last five years, gold has been in a bear market after a peak in 1980.

-Central banks have tons of bullion which they occasionally threaten to sell.
If you don't count the last five years, gold stocks have not done well either.

-Since gold funds have made big moves over the past five years,espcially this year..reaching $1200 and all it's time for them to drop back? Beaucse i don;t know how to value it, i also cannot say it has or hasnt reach a fair value based on price alone. But i know one thing for sure, the higher a price you buy, the harder you fall.

Some ways of investing in GOLD
Investment in gold can be done directly through ownership, or indirectly through certificates, accounts, spread betting, derivatives or shares.

Other than storing gold in a safe deposit box at a bank or in your home (btw if i really have gold i would store it under my chinchilla cage hehe), gold can also be placed in allocated (also known as non-fungible), or unallocated (fungible or pooled) storage with a bank or dealer.
Other ways include investing in

Gold bullion. - Refiners produce gold bars from one gram to 400 ozs.

Gold coins. - The most popular are one oz coins such as the American Eagle, Canadian
Maple Leaf, the South African Krugerrand, and the Austrian Vienna Philharmonic. They are easy to keep and transport and closely match the price of gold with a small premium. More specific details.

Numismatic coins. - Older coins which fit the description of collectibles have a premium to the value of gold included in the coin. The holder is dependent upon an accurate and fair appraisal.

Gold certificates. - A certificate which represents ownership of gold bullion held
by a financial institution for convenient and safe storage. There is a fee for storage and insurance.

Gold futures and options. - A futures contract traded on one of the futures exchanges, such as the COMEX in New York. This method is generally leveraged and options provide price movement much more than that of gold itself. It can be used to sell short and can be used to benefit from a drop in the price of gold.
Gold Mining stocks. - Stock ownership of a company traded on one of the exchanges. The price movement is dependent not only upon the price of gold, but also upon the future of the corporation and management. It's price movement is almost always more than the movement of gold itself. Market Vectors Gold Miners ETF (GDX) is one way to invest in stocks.

Jewelry. - Representing the largest consumption of gold each year, jewelry is a major method of savings in developing economies.

Exchange Traded Funds (ETF)- Perhaps the safest method of buying and owning gold by buying shares in a fund based solely on the existing market price of gold. No leverage or storage problems. Etc: UOB Gold Units, DBS Gold unit trusts.

Gold Mutual funds. - A relatively safe method of buying and owning gold stocks allows the owner to diversify among many stocks and allows the investing decisions to be made by a professional. Investment methods vary among funds and provide many different styles of portfolio management for an investor to choose from. Prices move faster and further in both directions than the price of gold.


What some expert say about GOLD
Gold has been, more often than not, regarded as a good hedge against inflation. With the skyrocketing prices of commodities in the first half of last year(2008), inflation across the world started to move towards double-digit terriory. Countires like India and China had inflation of upwards of 12%. With the rising inflation gold was a prime investment theme then. Inflation has now fallen back to single-digit levels in most economies and there seems to be a real threat of deflation with falling consumption.
After having exhuasted all the above theories, the lastest story is that of safe investment in uncertain times. With falling stock prices, falling treasury yields and the sovereigns default risk inching upwards, investing in gold seems to be the buzz word again. The reason this time is that gold is a real tangible that has been considered valuable for centuries. The supply of gold is limited, hence making it a perfect investment.

Central banks across the world have tonnes of bullion which they occasionally use a political motives to threaten to sell. The question is will they act on this threat if national debt needs to be repaid? Central banks have pledged gold in the past to obtain foreign debt.
Does gold growth with time or generate income or pay interest?
Consider holding physical gold, it incurs storage, insurance and even GST charges.
What would happen if the gold funds faced redemption pressure or if the IMF decided to sell its gold reserves?

Finally in my opinnon, investing in gold now.. is not of value, perhaps then i should seek more understand of the material and how to derive its true value. If i can't understand it wouldnt invest, another golden rule in my principles of investment. On another note, Akat and i wishes all my readers and friends a happy and wonderful new year ahead. =D