Sunday, December 27, 2009

Gold - the ultimate Currency

Man has an affinity for gold. Since time immemorial, gold has been a much sought-after metal. It is a symbol of wealth and power. People of all ages treat it as precious. The price of gold was about US$35 per ounce in 1946. As of Dec 24, 2009, it was traded at US$1,105.20 per ounce. For comparison, a shop house in 1946 that costs Malayan dollars 20,000 is worth about RM500,000 now.

In the past, the price of gold has been rather slow. But in the last 10 years, it has taken a turn for the better. From below US$300 per ounce it has fairly quickly reached US1,227.50 per ounce. This is highest price of gold so far.

Gold and the US$ do not go the same way. When the US$ appreciates, the price of gold drops. This is evident in the last 3 weeks. Gold was last traded at US$1,105.20 per ounce on Dec 24, 2009. From its peak, it has dropped about 9.979%. Many analysts call it a correction. Is it a correction, and how much will it correct? From my reading of the chart, I would say that it is a correction and it is likely to come down to about US$1000 per ounce before trending up further. So watch it carefully, if you want to invest in gold.

China is now crazy for gold. Until a few years ago, the Chinese in China are not allowed to invest in gold. Now, it's the other way round. The Chinese government wants their citizens to buy and hoard gold. China has a population of 1.3 billion. Imagine how much impact the price of gold will be affected if this group of 1.3 billion people became interested in gold and started to buy and store gold. The recent increase in the demand of gold could be due to this change of heart in China.

Gold has many uses. Chief of which are for jewelry, coinage, dentistry and for the electronic industries. Our ever-upgrading use of technology has actually been a major factor in the recent increases in the demand for gold.

The paper currency everyone uses now is called fiat currency which is sure to devalue over time. Gold on the hand is sure to appreciate.

How do I invest in gold? The fastest and easiest way is to buy jewelry. However, this is not a smart way. Because when you buy jewelry, a certain amount of fees for handling and craftsmanship has been added to the price. This means when you later sell back the jewelry to the shop, you will have to sell it at a discount. Besides this, jewelry also attracts robbers and thieves who may attack you when you least expect it.

Buying bullion or gold bars also carries the same problem of risk. Perhaps opening a Gold Account at Maybank maybe the answer. If you wish to find out more, just give them a ring.

Another way to invest in gold is to buy gold mining stocks. At the New York Stock Exchange, there are many gold mining stocks you can buy. Some of these mining stocks are: Goldcorp Inc. (GG), Eldorado Gold (EGO) and Barrick Gold Corp (ABX).

Silver normally goes hand in hand with gold. Thus, if you believe in gold, you should also consider investing in silver. One silver stock that I like is SilverCorp (SVM) now selling at under US$7. I have bought 1000 shares at 6.46 per share.

Disclaimer: Whatever action you take as a result of reading this article is your own responsibility. You buy or sell at your own risk.

Happy New Year and may 2010 be a Golden Year.