All You Need to Know About Gold

It wasn't until Jan. 1, 1975, that Americans were again allowed to own gold bullion coins and bars. At the time, gold was trading in global markets at around $170 an ounce. Just five years later, in 1980, amidst growing inflation fears, the price of gold rose to more than $800 an ounce.

Since August 1971, there has been no official link between the dollar and gold. Gold owned by the government was officially priced at $38 an ounce in 1972, although no foreign central bank or individual could access that gold. In February 1973, the official price was raised to $42.22 an ounce, where it remains today. Currently, the Mint says there are 143.7 million ounces of gold in Fort Knox.

The brief history lesson was necessary, I think, to understand why many feel that gold is a wise investment at a time when government is creating paper money out of thin air. They remember it was only 37 years ago, enough time for a generation to forget, that foreigners decided they didn't want to hold U.S. dollars.

Part 3. How to buy gold

There are several ways to invest in gold, and each has its own advantages and drawbacks. If you decide to purchase gold, you might want to choose several of these alternatives:

• Gold-mining stocks or mutual funds: The advantage of buying shares of gold mining companies is that they pay dividends. That gives you a stream of income that you don't get when you buy bullion or coins. In addition, these gold mining companies are leveraged, in the nicest sense of the word. Their mining costs are fixed; if the price of gold bullion rises, they make more profits without much additional cost. You don't have to become a gold stock expert, since there are many gold mutual funds listed at Morningstar.com.
• Gold exchange traded fund(GLD Quote): This exchange traded fund, traded on the New York Stock Exchange, acts as a proxy for the price of gold bullion.
• Gold bullion coins: Many countries issue gold bullion coins, including the United States, which currently issues U.S Gold Eagle coins containing one ounce of gold, and also smaller gold coins, as well as gold "Buffalo" coins. As well, you can purchase Canadian Maple Leaf coins, Australian Kangaroos and the Austrian Philharmonic gold bullion coin. All are priced based on gold bullion, with a slight premium for minting and distribution costs.
• Numismatic (collector) coins: Older gold coins may have a collectors value and a more limited marketplace. Their value is based on rarity and the condition of the coin. Some investors remember that in 1933, most numismatic coins were exempted from confiscation, and are willing to pay a premium over the gold value to hold these coins. Again, use a reputable dealer.
• Gold bars: You can purchase gold bullion "bars" in various sizes. One ounce is standard, but there are smaller wafers, and bars as large as 450 ounces. The problem with larger gold bars is that they should be kept in custody, to ascertain they have not been tampered with in any way. Thus, there are storage charges. And the storage provision opens the way for fraud. In the early 1980s, there were revelations of warehouses filled with bricks painted gold to look like gold bars!

And I leave you with this comment by James Dines ("the original goldbug") many, many years ago. It has stayed in my mind ever since. He said: "When my girlfriend asks for a bracelet made out of paper, I'll know paper is as good as gold!"