| Investing Money In Gold Appears To Be A Good Hedge Against Recession |
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With all other sectors of financial markets getting beaten down by the whip of recessionary trends, today a safe investment avenue is that in gold. It has always been a good hedge against inflation and deflation too. Moreover, practical experience today has borne this out and reinforced the feeling that when all other investment avenues dry up as not providing good returns, gold really rules the roost.
Today gold is running at $1,000 per ounce and the general feeling is that with the US Fed tweaking the interest rate down to near zero, gold will rise to $2,000 per ounce. Unlike platinum and silver that are valued more in industrial applications than elsewhere, gold carries inherent storage value. Investment in platinum forms only about a third of its total demand in industry. The same figure for gold is as much as 90%. With the US federal government flushing the economy with stimulus funds, it appears that investments in gold will rise steeply in the next two years at least. This is the minimum period of time required for the US economy to rise up somewhat from the deep morass it currently finds itself in. Naturally with the pouring in of money into the markets, the boost to inflation cannot be avoided. Another aspect is the devaluation of currency that steep rise in inflation rates are likely to result in. These two conditions offer the maximum scope for the rise of gold as a profitable investment at least in the short to the medium term at least. However, investors need to be wary of investing directly in gold producing companies especially when inflation is at a high. The reason is that production costs increase due to rising inflation which depletes the net profitability. The only case when investing in gold producing companies can be more profitable rather than in the metal itself is when the market is under deflation. This decreases gold production input costs and therefore increases an investor's profitability from the investment. The risk in gold investment in the above scenarios is hardly worth mention. It is comparatively negligible considering the rewards that you can gain as the likely outcome. The rewards to risk ratio in investments in gold at such a time is worth it and investors need to invest in huge numbers in this precious metal and book profits about one to two years later. The surprising fact is that even when the financial markets are up to their normal growth patterns, gold prices are still very stable albeit at a much lower level. The only thing is that then the share market generally offers a greater return against investment so the fever for gold dies down relatively. Related Articles
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