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Despite its history of gains, and 5,000 years of tradition behind it, gold is rapidly becoming one of the most widely despised assets. Before we pronounce it dead and write the final gold eulogy, however, let’s consider the following:
The above comments, and those below, have been edited by munKNEE.com (Your Key to Making Money!) for the sake of clarity [] and brevity (…) to provide a fast and easy read and have been excerpted from an article* by Simon Black (SovereignMan.com) originally entitled Worried about the price of gold? You might own too much – Some clear thinking about the price of gold and which can be read in its unabridged format HERE.
After reaching its low in April 2001, gold closed higher for 12 consecutive years which is something that had never happened before in ANY financial market with ANY asset. Then came a correction; the price started falling, and gold is now on track for 2015 to be its third down year in a row.
Before we pronounce it dead and write the final gold eulogy, however, let’s consider the following:
1) Accept the fact that nothing goes up (or down) in a straight line. After 12 straight years of unprecedented gains with any asset class, it’s not unusual to have a meaningful correction and this correction could easily last for several more years, with prices potentially well below $1,000 but it’s rather short-sighted to completely lose confidence in an asset that has a 5,000 year track record because of a few down years.
2) Appreciate why China announced lower than expected gold holdings (which caused the price of gold to drop by nearly 5% as a result). The Chinese have a vested interest in understating their gold holdings as doing so will push the price of gold LOWER, which is exactly what they want.
China is sitting on trillions of dollars in reserves right now, a portion of which they’re rapidly trying to rotate OUT of US dollars so it’s clearly beneficial to the Chinese government if they can sell dollars while they’re strong and buy gold while it’s cheap – and if they can push gold to become cheaper, even better for them.
3) Remember why you own gold to begin with. Gold is a very long-term store of value. Notwithstanding a few down years, gold has maintained its purchasing power for thousands of years while paper currencies come and go. They get devalued, revalued, and extinguished altogether…
Even more importantly, aside from being a long-term store of value, gold is a hedge, a form of money, that acts as an insurance policy against a dangerously overleveraged financial system.
How much will your dollars and euros buy you in the event of real financial calamity or if there’s a major government default or central bank failure? No matter what happens in the financial system– whether it collapses under its own weight, or cryptofinance technology revolutionizes how we do business– gold ensures that you’re protected.
4) Resist the urge to value gold in paper currency. We all have this tendency – we invest in something, and then hope it goes up in value, but that’s a mistake with gold. It’s a hard thing for some people to do, but try to stop yourself from thinking about gold in terms of its paper price…
Remember, gold is not an investment. There are plenty of better options out there if you’re looking for a great speculation so the notion of trading a stack of paper currency for gold, only to trade the gold back for a taller stack of paper currency misses the point entirely.
5) Don’t own more gold than you are comfortable with. If you are constantly checking the gold price and checking your portfolio, you might own too much, so consider lightening your load…
Don’t love anything that won’t love you back. Stay rational. Own enough gold that, in the event of a crisis, you will feel comfortable that you have enough ‘real savings’ – but don’t own so much that you’re constantly worrying about the paper price.
*http://www.sovereignman.com/gold/some-clear-thinking-about-the-price-of-gold-17326/
Related Articles from the munKNEE Vault:
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This article takes a look back at the history of gold’s performance as an investment over the years.
2. The 6 Most Commonly Held Anti-Gold Beliefs That Don’t Hold Water
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8. Protect Your Portfolio By Including 15% Gold Bullion – Here’s Why
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9. Gold & Silver, Not Cash, Are the Ultimate Risk-free Investment Class – Here’s Why
Instead of gold, people commonly think of paper money as the only medium of exchange and as a store of value; cash is after all their unit of account. They see the gold price rising when they should be seeing the value of paper money falling.
10. Gold Measurements “Troy” & “Karat”: What Do They Mean?
You have no doubt read countless articles on the price of gold costing x dollars per “troy ounce” or perhaps just x dollars per “ounce” but the difference between the two measurements is significant. For that matter, what’s the difference between a 24 karat gold ring and an 18 karat gold ring? Let me explain.