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Is Gold a Safe Investment?

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One of the first question people ask about gold investing is often: Is gold a safe investment? If history is any guidance then yes, gold is a very safe investment. People have used physical gold for almost 5000 years now to store and preserve their wealth. In many cases they have also increased their wealth just by storing it in physical gold.

You may have heard the expression that gold is considered to be a safe haven? But what does this all mean? How can an investment be safe? I mean theoretically everything should be able to go to zero right? To become worthless.

Gold-vs.-Paper-Money

Hard Asset vs. Paper Asset?

The real reason why gold is considered a safe investment is because it is a hard asset instead of a financial asset. When you buy a stock, that is not more then a piece of paper that you own. It has no intrinsic value like a hard asset. With intrinsic I mean that you can feel and touch it. Much like a house will be a hard asset. You can feel the bricks and mortar and see the roof. You can see the value. Same with physical gold.

Because I mean if you really think about a stock or any other financial assets are not more then just a piece of paper claiming that you own something. That paper could disappear in a stock market crash for example. With gold you have the safety of holding the hard asset yourself. The thing with value is in your hands and not stored on a computer somewhere where you have to hope that it is actually there and it says your name on it.

When you want to answer the question if gold is a safe investment I think we should look at how gold is performing during a market crash or other economic uncertainties. That is when most people loose all of their money and they wish that they had placed their hard earned cash in something safer then a stock market paper. It’s during these times when you can see if an asset is considered safe or not.

Golds performance during stock market crashes

One thing you often hear about gold is that it is a safe asset to be in during stock market crashes and other economic uncertainties. During a stock market crash panic drives the market way down. For example in the stock market crash of 2008 people that were invested in the stock market lost around half of their money almost over night.

Lets have a look at some of the stock market crashes in history and see how gold did. Does the statement that gold is a safe haven under economic uncertainties hold? First lets have a look at how gold performed during the stock market crash of 1929 which was the beginning of the Great Depression.

From 1924 to 1929 the stock market had seen tremendous gains and the major reason why was because the so called investment trusts which is kind of the same as a mutual fund today. And because of the laws of economics that nothing will keep going up for every sure enough everything came crashing down in 1929. The Dow Jones Industrial Average went from 385 points in October of 1929 and bottomed out at 41 in 1932. So if you were invested in the stock market in 1929 you lost almost 90% of your money! No thank you.

Because gold at the time had a fixed price simply because the dollar was backed up by gold it is hard to use the physical gold price. What people usually do to look at the performance of gold during the great depression is to look at a gold stock that was called Homestake Mining. This is used as a representation of all gold stocks. The stock went from $80 in October of 1929 and soared in value to $495 per share in December 1935 (end of great depression). That is a 519% gain!

Take a look at the chart below where the red line represents the Dow Jones Industrial, which represents the stock market. And then the golden line which is the Homestake Mining stock which will represent the gold price. Simple question: Where would you want to have your money in a market crash?

Take a look from 1929 when the stock market (red line) completely crashes. At the same time gold (gold line) skyrockets.

Take a look from 1929 when the stock market (red line) completely crashes. At the same time gold (gold line) skyrockets.

We have only looked at one stock market crash and the evidence is already very convincing that yes the statement is true. Gold is a very safe place to be if you want to preserve, and increase, your wealth during a market crash. You will see the same pattern in almost every market crash. As soon as people fear a stock market crash they sell their stocks to buy physical gold which drives the price through the roof.

Lets have a look at another market crash that is a little bit more recent and see if we can find the same patterns. Between January 11th 1973 and December 6th 1974 the United States experienced a great stock market crash. The Dow Jones Industrial average, which is used to represent the stock market average, lost 45% of its value in just two short years. This made it the seventh-worst stock market crash in the history of the index.

Lets see if the statement still holds that gold will skyrocket during an environment like this. In 1973 gold was publicly traded as a commodity. 1971 Richard Nixon took away the peg between the dollar and gold, and gold could be traded freely. During the great depression we looked at a gold mining stock but now we can look at the actual price of one ounce of physical gold.

At January 11th 1973 the price of gold was $65 for one ounce. By the time the crash and recession was over in December 6th 1974 gold had risen to $180! Gold had almost tippled in value during two short years when the stock market had lost almost half of it’s value.

During a stock market crash people are running away from assets in dollars like the stock market. And invest in physical gold driving the price through the roof.

During a stock market crash people are running away from assets in dollars like the stock market. And invest in physical gold driving the price through the roof.

Once again gold has proven that during economic uncertainties and market crashes people will dump all their paper assets and run towards physical hard assets like gold, driving the price much higher. I have just taken two examples here but if you do some own research you will see that the safest place to be during economic uncertainties is physical gold. You will not only protect your wealth. In many cases you will increase it dramatically.

These two examples is not something that I have just fabricated to prove a point. If you look at all the market crashes and other economic uncertainties all the way back to Ancient Greece you will see similar results. Gold has been tested many times throughout history in the form of wars, crashes, earthquakes and everything else dramatic that you can think of where you have a fear of losing your money. Every single time gold has kept it’s value as a promise of being a safe investment.

Me personally and a lot of other people think that another stock market crash is imminent. You can feel it in the air that there is a lot of uncertainties around the world and sooner or later everything is going to come crashing down just like it has done so many times through history. This time will not be an exception.

Do you want to take advantage of this? Would you like to do the same type of trade as people did in 1929? When instead of staying in the stock market and loose almost 90% of their money they saw the economic storm coming and placed themselves in physical gold to see a 519% gain of your money instead?

I believe that we are faced with the same opportunity today and I for sure will take advantage of it to make myself richer. There is more reasons for why you should invest in gold then just because it is a safe haven. Click the link below to find out what my top 3 reasons are of why you should invest in gold or please leave a comment.

My top 3 reasons for why you should invest in physical gold today.

Why Should You Invest In Gold?


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4 Comments

  1. This is an interesting article on gold and reasons for investing.
    I have a couple of comments to make. The first is; have you defined your ideal customer? Can you describe them in detail? Once you understand this, then you may be able to lead them to a purchase decision more easily. I am not sure you have led me to a convincing conclusion. The second is, have you had another person proofread the page? I believe you would be targeting people with reasonable disposable income and so you need accurate spelling and quality grammar to ensure I can believe the site is genuine and the advice is of high quality. I am sure you are genuine but others may not think so.

    • Hi outsidergames2. Thanks for reading my article.

      My ideal customer is someone that has understood that in order to survive the economic challenges that we are facing, they need to own some physical gold.

      You are right in that people with lots of funds are often a bigger target but I also see spreading the word of physical gold as a duty. Even a person with smaller funds can invest in physical gold today because you can buy it by the grams.

      You are totally right in that I should have someone proofread my posts and make sure that it is looking as professional as possible. Is there any specifics that you can point to so that I can make some changes?

      I have been reading about and investing in physical gold now for almost a decade. I have just started to try and spread my knowledge and hopefully I will get better at sounding as genuine as possible.

      Thanks again!

      Marcus

  2. Hello there Marcus,
    Great article! I am fairly new to investing and I am strongly considering investing in gold. I have other investments in stocks and bonds but I am trying to keep a diversified and balanced portfolio. I think an investment in gold would be really great. I do have one question if you can answer it, why is it that gold does so well during stock crashes. Are downfalls in stocks directly correlated with the rise of gold?

    • Hi Josue.

      Thanks for reading my article. I think that having physical gold in your portfolio is a great hedge against the stocks and bonds that you own. A lot of professional investors are saying that every portfolio should have between 15-20% in physical gold.

      The reason why? See the gold as your safety. Even if the stock market would collapse tomorrow you will still have your physical gold. The gold is outside of the financial system so it doesn’t get affected the same way that stocks and bonds do.

      The reason why gold is doing so good during stock market crashes is because people owning stocks and bonds are panicking and are selling their stocks. Then they will look for a safe haven to put their money until the stock market crash is over, and through history that choice have often been gold.

      Because so many people are rushing into gold at the same time it drives the prices up. Remember that physical gold is an actual metal from earth. There only exists a certain amount of gold in the world. If a lot of people want that gold, the price will go up.

      Hope this was helpful. And I strongly suggest putting some of your assets into physical gold as a safe haven because when you follow the news you can kind of tell that there is another stock market crash coming very soon.

      Marcus

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