Investing in gold 2006
The best performing major asset class for 2005 was gold. However, gold has lagged the commodities and precious metals boom and is still very cheap in relation to other commodities such as oil against which it has traditionally been benchmarked.
In fact, gold was at a 25-year low in terms of its value in barrels of oil this summer, and other metals have risen in price by a factor of several times. Therefore, don't be fooled into thinking that gold's recent rally has made gold expensive, on any rational analysis gold is very cheap, and you should always buy low and sell high.
Why is it that gold prices are only now getting back to where they stood 25 years ago? When you think of general price inflation in that period surely gold is due for a major revaluation. A university graduate in London earned perhaps ,000 in 1980 compared with ,000 today, yet gold prices are actually lower than in 1980.
In the investment world spotting an undervalued asset is the name of the game. Gold has also been in short supply for the past year as a physical commodity, while investors have begun to look at gold as a hedge against rising inflation due to the high oil price, and as a financial safe haven against likely problems in capital markets due to high US debt levels or even a serious outbreak of bird flu.
Zero sum investment
Another reason to buy gold for 2006 is simply that the alternatives do not look so bright. Hedge funds have had a lousy 2005; US equities have shifted sideways; US bonds have probably peaked and higher interest rates should depress bonds; real estate is beginning to feel the impact of higher interest rates; GCC equities look massively overbought and the best real estate opportunities have gone; and so the list goes on, US and UK property are in trouble too.
Choosing a safe haven in such an uncertain outlook is really a no-brainer. Instead of gold you could opt for a US dollar deposit account, but it is difficult to know if the US dollar will rise or fall in a tougher economic environment, and perhaps owning gold that is denominated in US dollars is sufficient exposure.
Hence a simple zero-sum investment game leads you to gold as the best option for investment in 2006, which is probably going to be a year in which capital preservation is more important to worry about that capital gain. How then should you invest in gold?
Article source: http://ezine.softbath.net/stock/Investing-in-gold-2006-087.php