Sunday, March 2, 2008

The only sure thing is the Allure of Gold

Men have had a romance with gold since the beginning of time. Sure women love it too, but very few have left their families, their homes, everything that they have ever known to go in search of a shiny yellow metal. This attraction is irrational, it defies logic, common sense. The lust for gold has lead men all over this planet and deep towards the center of it, too. Some may argue that it has no real value, it’s not worthy of investment, but it has always been treasured by humans. Ancient history, as well as recent history has shown us that people will sell their soul for gold.

Gold currently moonlights as a commodity, as it does have practical uses. It is used to plate electrical contacts, build low loss waveguide, and create jewelry just to name a few. It trades as a commodity in our markets today, but really it is much more. The desire for gold is extremely powerful and has driven the exploration and exploitation of the world. Thousands have died for gold. Over time many items have been considered valuable as a result of supply and demand such as: spices, silk, crude oil, gas, dollars. And when those valuables are gone, gold will still be there. It represents a safe haven and that is why it continues to hold its own in the market.

If you could invest in only one thing from the dark ages to now to the end of time, what would it be? What investment has always been valued, always marketable, always tradable? Gold, of course. That doesn't necessarily make it a good short term investment, but long term, and in times of dire markets and shaky economies, yes.

So when the possibility of Armageddon arises or maybe just a recession, we all rush to be in gold, not paper money. Gold is the standard and we fallback or regress to the standard. No government has to tell us it’s valuable. It’s not like paper money, because regardless of what country backs it, it's still only paper. US dollars used to be backed by gold, but not anymore. It is now backed by your faith in the market and the government that is printing it. If that faith wavers, as in a recession, or market collapse, then the value of paper dollars will also collapse.

If there was ever one thing that has been a constant through time, since the beginning of mankind, it is the allure of gold. Do you really think that is going to change anytime soon?

Disclosure: I own gold in the form of shares of the Exchange Traded Fund (ETF) GLD, a gold mining stock and a Canadian ETF, EWC. I just wish I owned more of each!

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