A Beginner's Guide to Investing in Gold

Written By: Mark O'Byrne  |  Posted: Tuesday, August 17th, 2010

Gold has been sought after for its unique blend of near indestructibility, beauty, rarity and because of its status as a means of exchange and universal currency par excellence for centuries. Empires and nations have sought to possess gold as a medium of international exchange, as a store of wealth and in order to increase and preserve power. Individuals have used gold as a store of wealth and as insurance against the fluctuations and depreciation of paper money and to protect against other macroeconomic and geopolitical risks. Throughout history, perhaps no other asset in the world has had the universal appeal of gold and this appeal has increased in recent times due to the very significant macroeconomic, geopolitical, monetary and systemic risk facing our modern global financial system and economy.

Successful investing is about the diversification and management of risk. In layman's terms this means not having all your eggs in one basket. We know from history that markets can and do crash and if you are not properly diversified your nest egg can be severely affected. So a healthy portfolio will include a wide range of assets including a variety of equities with exposures to different market sectors and regions; a variety of different countries' bonds of different durations; a diversified property portfolio; a cash component and a 5-15% allocation to gold related investments and gold bullion. In these uncertain times, caution and risk consciousness is crucially important and counterparty and systemic risk should be considered. The key is to determine what amount of each asset class to have and to own assets that will whether the onslaught of inflation, deflation, stagflation and even hyperinflation.

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