Gold, a Hedge Against the Perils of Interesting Times

While paper-based investments and real estate are vulnerable to effects of changing times, gold soars. A precious metals investment may save a portfolio when all else fails.

The old Chinese curse, “may you live in interesting times”, has particular relevance to the current epoch of U.S. history. There’s a lot going on right now, much of it scary. Major investors around the world are responding to the events of our perilous age by sinking their dollars, deutschmarks and yen into gold, silver and palladium; Bill Gates, Warren Buffet, and billionaire speculator George Soros to name but a few. Big financial institutions like the Central Banks of Russia and China are also leaping onto the metals bandwagon driving the price of these precious commodities ever higher.

This is spurring a gold rush not witnessed since the Misery Index years of the 1970s. Many financial experts now view gold in particular as an island of stability in a paper-based investment market growing stormier all the time, a development that bodes well for everyday folks who want to shore up their retirement accounts with a precious metals hedge.

“People the world over are losing faith in politicians, and currencies,” says Marc Lubaszka, of World Financial. “This has resulted in a flight to gold and other precious metals, a storehouse of value for more than five thousand years. Investors are taking their money out of paper assets, and putting it where it is likely to earn a better return in uncertain times.”

Old Reliables Unreliable
Investments once considered as stable as granite are rapidly losing ground, Lubaszka explains. Real estate is but one example. Long praised as a slam-dunk by money gurus, home-buying is no longer viewed as a hurdle-free path to profit. Stratospheric pricing and higher interest rates are putting intolerable pressure on the current housing bubble, factors bound to bust the suds sooner or later and drive the overheated real estate market into deepfreeze.

“The housing bubble will burst rather than gradually deflate, following the rapid and violent pattern of decline of nearly every financial bubble throughout history,” Lubaszka says. “Higher interest rates negatively impact not only the health of the housing market but other economic segments as well. The stock market takes a hit because higher rates make it more costly for companies to pay for debt. Higher rates hurt corporate profit margins and reduce stock value, bad news given the deep debt situation so many companies are in today.”

Paper is Passé
According to Lubaszka, the U.S. dollar has lost more than 96% of its original value since the early 70’s when we went to a floating currency, a situation not helped very much by the debut of the Euro in the late 1990s. It is for this reason that many foreign investors have been taking money out of U.S. dollars and putting it into gold instead

“Gold prices are climbing right now because the Federal Reserve is printing dollars in flood proportions to keep the real estate market afloat,” adds Richard Russell, editor Dow Theory Letters, a stock market trends and securities report published since 1946. “This is creating inflation, which erodes purchasing power. All the world’s central banks are inflating right now, reducing confidence in paper globally and encouraging gold-buying. India and China are spurring gold prices as well. India is the world’s largest gold-consumer, and the Chinese government is actively encouraging its citizens to buy gold.”

Buy Without Getting Burned
Michelle Henderson, a talent agency owner in Los Angeles, Calif. understands the stakes when it comes to investing. “As an agent I work in a commission-based world, and have to invest in both people and ideas all the time,” she says. “Though I’d had bad experiences with stock investments in the past, I knew I would eventually find something that would work for me. I invested in a diversified metals portfolio made up of palladium, silver and gold, and earned a profit of 38% with the palladium alone.

Lubaszka explain, “It’s probably best for the first time investor to begin conservatively by purchasing physical metals instead of gold stocks, which can be very volatile”. According to Clearwater, Fla.-based talk show host and gold analyst, Tom O’Brien, when metals gain 20%, gold equities jump by fifty or sixty per cent. That’s great when it happens but the reverse can occur as well.

Buy gold bars or coins, and put them in a safety deposit box. If you chose to purchase coins from a coin shop, make certain you pay the lowest price possible and that they have a buy back policy. If you elect to go with a broker, fees will be inevitable because you are purchasing a tangible commodity.

There are brokers, and then there are brokers. The best of the breed will answer all questions, and make the process of first-time gold buying less nerve-wracking. Great brokers are also accessible when needed, and quick to call with any new information that affects the value of the investment.

Work with established companies, five years in business is good, ten even better. Don’t bother with firms that badger you with telemarketing offers or apply high-pressure sales tactics. Avoid paying high commissions too. Some brokers have layers of fees, through which they earn more money than they do investing on behalf of customers. There are also companies out there that will not buy metal back. Stay away from them as well.

“Check references and Better Business Bureau ratings”, Lubaszka adds. “Deal with a company that takes an active interest in doing business with you. World Financial, for example, offers a five-star customer satisfaction guarantee. A financial advisor’s job is to ease the investment process, and to insure that customers get the most for their money. Good advisers are merely good, but the best are worth their weight in gold.”