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Gold Investing Pros and Cons on 2011
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As the world economies edge closer to chaos, gold has, once again, been thrust into the spotlight as the bastion of safety and stability. After a decade of quietly and steadily gaining 400% in value, gold has finally entered the mass consciousness of nervous investors eyeing a continued decline in the value of the dollar and the ominous re-emergence of inflation as a threat to their wealth and purchasing power. Millions of people are, for the first time, evaluating the pros and cons of gold investing as they cautiously embrace the precious metal as a hedge against inflation and volatility.

Until recently, gold investing has been largely dominated by institutional investors as the options for accumulating gold by smaller investors have been somewhat limited. Now, with the advent of gold exchange-traded funds, electronic gold accounts, and online gold coin dealers, small investors have the same opportunity as the institutions to participate in the gold market. As with any investment, gold investing has its pros and cons, which should be carefully evaluated in the context of a person’s own financial situation.

Gold Investing Pros

Gold is a demand resource that is in short supply which will always keep upward pressure on its price.
The declining U.S. dollar and decreasing confidence in the U.S. economy are forcing foreign governments to increase their gold reserves. This will continue as confidence continues to wane.
Gold has always been recognized as a global currency, redeemable for goods or cash during even the worst economic conditions. Owning physical gold is a protection against currency devaluation.
Gold prices are not correlated with other financial markets such as stocks which make it an effective hedge against volatility and market declines. During the recent stock market turmoil gold prices continued to rise.
Gold exchange-traded funds enable smaller investors to accumulate gold in small price increments. Although investors never take possession of the physical gold, their share prices will correlate directly with the spot price of gold.
Electronic gold accounts available online, enable gold investors to accumulate physical gold, in coins or bullion, without concerns for storing it. The gold is held in a vault (storage fees apply) and is deliverable on demand.

Gold Investing Cons

Gold prices have risen so dramatically in the last ten years that some analysts foresee a significant price correction (which is not a bad thing, because you can simply acquire more gold at cheaper prices). The larger concern is that some analysts feel that the current price of gold has been inflated through speculation and that the true intrinsic value is significantly lower. If this is a “gold bubble” and it eventually bursts, the price of gold could fall by as much as 50% (or, so say the bubble theorists).
Although owning physical gold is a preference for investors who are concerned with a possible currency collapse, it is not without its risks. Gold needs to be stored. There is always the risk of loss, theft, confiscation.
Much of the recent rise in gold prices is in anticipation of inflation, which most people see as inevitable. Should inflation not materialize as expected or it resumes at a moderate pace, or if the economy experiences deflation, gold prices could drop.
As small investor interest in gold investing increases, premiums (the amount a dealer charges over and above the spot price of gold) will increase. This will affect small investors the most because large investors will be able to buy in bulk with negotiated premiums.
RESOURCES
http://www.investingingoldwins.com/gold-investing-pros-and-cons/