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Is Gold the Key to Your Golden Years?

Gold has been the benchmark of wealth since the beginning of time.  Whether it be in the form of a crown, a ring, or a hidden treasure chest, gold has long been a symbol of power and prosperity.  Maybe that’s why people on TV are always yelling at us to sell them our scrap gold.  And maybe that’s why other people on that same TV are urging us to buy their gold.

So what do you do?  Do you buy?  Do you sell?  Do you ignore them altogether?

These questions can be hard to answer, with thoughts on gold investments differing with almost every new person you ask.  30% of investors believe that gold is the best long term investment for them, making it more popular than nearly every other investment venue offered, according to a recent Gallup poll.  With the popularity growing, it was time to get the facts on this precious and historically coveted metal.

A new study by Duke University professor Campbell Harvey and co-author Claude Erb did just that, looking into just what is behind the allure of gold.  The point of the study strayed away from giving a thumbs up or down assessment of gold, but rather looked at the true role that gold played in asset allocation.  Here are some of their major findings:

· Long Term Inflation Hedge?

In the short and intermediate term, gold does little to protect against inflation.  Overall, it is hard to say whether gold could serve as an inflation hedge in the long run, but if an investor is patient enough to hold on to their gold for nearly a century to find out, only then would they find a definitive answer.  Until then, it’s hard to say.

· Currency Hedge?

The fluctuation of the real price of gold seems to stand almost entirely independent of the change in currency.  This means that the real price of gold moves in unison among different perspectives or currency indicating that gold doesn’t appear to serve as a currency hedge either.

· Protection Against Poor Markets?

Although gold seems to stand slightly apart from market movements, gold fell in minor correlation with market drops.  It isn’t as dependent as other investments find themselves, but gold cannot be considered a complete safety net against market movement.

· Demand-Based?

The price of gold has little effect on the production and supply of gold. The demand is based in majority on the impact of the momentum of investors.  The price of gold that is affected by this momentum is often short lived and returns to original value in a matter of time.

· The Current Real Price

Right now, the current real price of gold is high, and could continue to rise as more central banks, often found in developing countries, buy into gold.  Since 2002, the real price of gold has increased over 500% to $1,600 an ounce.  That rise is certainly nothing to scoff at.

Outside of the economic and financial details of gold, many people waiver on the tangibility of the gold itself.  Some see it as an advantage while others a disadvantage, in terms of possessing the gold and keeping track of the physical bars.  The idea of being in physical possession of their investment causes a feeling of security for some who are reassured by the presence, while for others it’s a cause of concern as they fear theft or misplacement.

You might look at these findings and think, “So, what am I supposed to do?”  Well, part of having the right answer is the ability to ask the right questions.  These facts lay out the examinations of the many justifications of investing in gold or staying away from it.  At the end of the day, gold is an investment, and like any other investment, it must be considered from all angles on an individual basis.

Overall, if you find yourself with an ancient looking map upon which “x” marks the spot, it may be worth the trip; but in terms of investments, gold is still up in the air and remains of speculative nature.

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