Gold

Here's what I've picked up about gold over the years.

The "spot price" or "gold spot" tells us how much gold is currently being traded for, usually given in dollars per ounce. But the ounce used for gold is a troy ounce, so forget about normal math.

With gold, the karat is a measure of purity. But with diamonds, the carat is a measure of weight. Is that confusing enough for you?

Maybe you've heard about 14 karat gold or 18 karat gold jewelry. Those are 58.3% and 75% pure, respectively. To find the purity from the karats, just divide by 24. So 24 karat gold is 24/24=100% pure gold. Except it isn't 100%. Just really close. For pure gold, we usually talk about how many nines of purity. Three nines means 99.9% pure. Four nines means 99.99% pure. You might even see five nines.

Pure gold is rather soft, so often less than 24 karat gold is actually desirable for jewelry. Regardless, the value of any gold item is usually proportional to the weight times the ratio of gold content.

Some coins are being marketed as gold, but if you read the fine print, they are only gold-plated. Don't be tricked. You're not going to buy gold coins at less than the spot price through a television ad. SMH. If it's too good to be true, it probably is.

Many coins have numismatic value in excess of the value of the actual metals. If you want to buy gold for gold and not coins that are expensive largely because they're rare, you should look for gold bullion, usually in the form of bars or rounds.

I mean, some coins are valuable just because of a glitch in the die or some other weird little detail, which is fine for coin collectors, but gold people don't care about that, we just want gold at the best price, and numismatics only gets in the way of that.

Gold prices usually move in the direction opposite of the stock market, as investors move their money from one to the other depending on their current sentiments about the future of the stock market. So holding some gold is considered a hedge or protection from unfavorable conditions.

Gold prices move up and down as a result of supply and demand for gold, but gold prices also rise as a result of inflation. Obviously, as the dollar weakens every year due to inflation, it's worth less gold this year than last, even if supply and demand remain constant.

I like gold, but I consider it too easy to misplace. $10000 worth of gold is only a few ounces these days, and gold is a very dense metal, denser even than lead. 70% denser, believe it or not. So $10000 of gold is very small in size, like a few little coins. I only want to buy gold in big bricks. Until then, give me silver. $10000 worth of silver would be much harder to misplace, and it gives you more material to look at and admire instead of making your wealth look puny.

Gold became valuable because it resists corrosion and thus stays shiny and new and was easy to work in ancient times, so it was used for jewelry, tools, weapons, and coins. It became a symbol of wealth and security and a safe way to store wealth. But it's really still just a shiny metal. It doesn't ever really do anything for you. It's really only useful if you own an electronics factory.

But it's better than paper in some situations. You can use your dollars as low-quality toilet paper if they become worthless someday.

If you want gold for preparedness for SHTF situations, you might prefer to buy the one-gram cards. They're easier to not lose than rounds or bars, and they're in amounts that are perfect for bartering for food and other essential supplies. And they look more trustworthy than a piece of metal that most folks can't tell from fool's gold. Many people will be skeptical of gold because most people don't know how to test it, so keep up with your purchase and assay records and certificates of authenticity and anything else to help.

You might think gold could survive any house fire because it's metal, but gold melts at a relatively low temperature, and silver melts at an even lower temperature. They can melt in hot fires, so do protect your precious metals in a fireproof safe.

Most financial advisors will probably tell a normal investor they should keep 5 to 10% of their total wealth in precious metals like gold and silver. Since bonds are no longer considered safe, some investors put money into precious metals that would have gone into bonds in a more traditional approach. Some may say put up to 20% into gold. When approaching retirement, it makes sense to shift more money from risky stocks to safer vehicles such as gold, especially in the final five to ten years of income.

If you do choose to buy some precious metals, you could use dollar-cost averaging to avoid bad timing so you don't lose money by buying a ton of gold just before the price happens to drop.

This page is intended as educational and informative and is not to be taken as personalized financial advice. Strong efforts are made to ensure these documents are correct, but there could be mistakes, especially when first uploaded. Please verify important facts before making investing decisions.