Chapter 5

      Investing in Gold

      IN THIS CHAPTER

      “Going for the gold,” “good as gold,” and many other familiar phrases mentioning gold have been around for what seems like forever, but for good reason. Few things conjure up thoughts of wealth and affluence the way gold does. I don’t recall any pirate in a B movie shouting, “Aargh! There’s zinc buried on that island, mateys!” On the other hand, gold … now we’re talking.

      Gold is an element found on the standard periodic table of the chemical elements. Gold is listed there with the symbol AU and the atomic number 79 (don’t worry, the quiz has been canceled). The most malleable and ductile of the metals, you could actually take a single ounce of gold and essentially stretch it out into 300 square feet (no, I don’t know why you would do it, but it sounds impressive). Gold is a good conductor of heat and electricity (and probably thieves as well). Because it’s generally resistant to rust and corrosion, gold quickly became an ideal material to fashion into jewelry, coins, and, therefore, money. The desirability of gold now became ensured.

      However, as you read this book, every major society is inflating its currency at record rates, which is good news for gold and silver aficionados. In this chapter, I highlight the important reasons gold is (or should be) an essential part of the modern portfolio and how it has stacked up against other investments and common economic conditions.

Comparing Gold to Other Investment Assets

      Gold is a finite element (literally — it’s the symbol AU on the table of elements) and has all the necessary qualities needed as money. It’s durable, portable, and divisible. It’s malleable enough to turn into coinage. It doesn’t decay or tarnish and is indestructible. In ancient times, it became an ideal medium of exchange and a store of value ever since. In short, it’s nearly an ideal form of money especially when compared to other forms of money (such as paper and digital currencies). When you juxtapose gold against modern world currencies, such as the U.S. dollar, the euro, the British pound, and the Japanese yen, you come away with some compelling points.

Figure 5-1 provides a snapshot of gold’s price performance since the beginning of this century (as of the first trading day in January 2000).