Much attention has been given to the rise in the price of gold in recent weeks, leading investors to wonder, what are the current factors driving gold? The easy answer to that question is --fear. We have already witnessed an eight year bull run in gold, but many believe that it's bull run is far from over. What is gold's role in the credit crisis? Is buying the metal a better investment than investing in gold mining companies? Is it too late to cash in on the growth?
Before we can answer these questions, let us first review what role a gold investment might play in your portfolio. Investors buy gold for a number of reasons, including:
- To hedge against inflation.
- To hedge against a declining dollar.
- As a safe haven in times of geopolitical and financial market instability.
- As a store of value.
- As a portfolio diversifier.
Falling under the precious metals asset class, gold is a monetary metal whose price is determined by various factors.Among these factors are: inflation, fluctuations in the dollar and U.S. stocks, currency-related crises, interest rate volatility, global geopolitical tensions and increases or decreases in the prices of other commodities.
In the credit crunch of deflation, gold and currencies are hoarded and the purchasing power of both rises. But, gold also thrives in inflationary environments. That is because of gold's unique property with a dual role as both money and a commodity. Think of gold as money, and money is hoarded in deflation so gold naturally tends to go up. The point here is
that gold does well during extreme economic environments. Let's dissect some of the benefits of owning gold in the paragraphs that follow.
As inflation goes up, the price of gold goes up. Since the end of World War II, the five years in which U.S. Inflation was at its highest were 1946, 1974, 1975, 1979, and 1980. During those five years, the average real return on stocks, as measured by the Dow, was -12.33%; the average real return on gold was 130.4%. The environment in the 1970's was not unlike the
environment today. The common denominators in both periods are huge budget deficits, loose monetary policy, soaring oil prices (2008) and the open-ended costs of war (Vietnam vs. Iraq/Afghanistan).
Store of Value
According to the World Gold Council, gold has maintained its value in terms of real purchasing power in the very long run in the US, Britain, France, Germany and Japan. Despite price fluctuations gold has consistently reverted to its historic purchasing power parity with other commodities and intermediate products. Gold is tangible, it's a physical asset that
brings a sense of comfort when intangible assets, like stocks, are evaporating. But, while they do maintain a store of value, it is worth noting that gold, like stocks and other investments, is also subject to price fluctuations.
Many investors are diversifying away from traditional equities and into gold because of the continued uncertainty surrounding the financial markets. Gold has long been considered a safe haven, or "crisis commodity". Of course, as investors flock to safety investors the price of gold is pushed even higher. Historically, as people begin to distrust their paper assets (ie. Currency), this positively influences the price of gold too, as we'll discuss in the next paragraph.
Not all citizens have full faith in their local currency, at times, this might even include the U.S. Dollar. So, what do they do?They buy hard assets like gold (a tangible and physical item or object of worth). Although it's no secret that U.S. Dollar is world's reserve currency and the main medium for global trade, the U.S. Dollar, like the Euro, Yen or other global currency,
is really nothing more than paper, or fiat money. Fiat money is money that is intrinsically useless and is used only as a medium of exchange. There is no physical asset that backs the U.S. Dollar today (or other global currencies for that matter) since its gold backing was stripped in 1971. But since gold is purchased using your local currency, in this case the dollar, then any decline in the value of the dollar causes the price of gold to rise.
While all the other rationales for owning gold are viable, perhaps the most important reason to consider gold in your portfolio is for its diversification benefits. Gold, like many other commodities, typically has an inverse relationship to the market. Assets with perfect negative correlation to other assets in a portfolio help investors hedge away their risks, in effect
they reduce volatility while enhancing performance. Gold and other tangible assets have historically had a very low correlation to stocks and bonds. Because the price of gold increases in response to events that erode the value of traditional paper investments like stocks and bonds, it's worth considering a fair allocation to this asset as part of a
diversified plan. The "right" allocation will depend upon your specific circumstances and risk tolerance, but a good gauge might be between 3% to 8%.
The gold market is highly liquid and there are many ways that investors can own gold. The most traditional way of owning gold is via gold bullion like gold bars and coins. When buying the physical asset, many people buy gold coins, considering the potentially higher storage costs or risks associated with owning gold bars. Gold coins can be easily purchased directly from the U.S. Mint or from authorized dealers and precious metals firms. Depending on where you purchase the coins and the current demand levels, you may have to pay a premium (above the current spot price of gold) to acquire the coins.
Another way to access gold is through futures contracts or products like gold ETF's (ie. Ticker: GLD) which offer investors a relatively cost efficient and secure way to access the gold market. A Gold ETF is an exchange traded fund with gold being the principle and only commodity being traded. Gold ETFs are listed and traded on the stock exchange and investors get units for their holding in the gold ETF. The returns on gold ETFs are more or less same as that of the spot price of physical gold. It's worth noting that the IRS treats gold as a collectible for long-term capital gains tax purposes, therefore, gains recognized by individuals from the sale of gold ETF's are subject to a capital gains rate of 28% if held for more than a year.
Finally, investors can also consider having gold exposure through gold mining stocks and funds. Some argue that this is more tax and cost effective, in that, there are no storage fees, theft concerns and gold mining stocks also benefit from lower capital gains rates. On the flip side, owning stocks in a mining company is really not the same as owning the actual gold.
In closing, gold's recent rise is really no surprise given the recent financial uncertainty in the global markets. As fear and investor trepidation permeate the markets, investors look to physical assets to help them preserve their wealth. Times of crisis help fuel the demand for gold and, arguably, the easy access allotted by gold funds or ETF's has further pushed up
gold's price in recent years. To a certain extent, the demand for gold, mostly by investment funds, is feeding on itself.
While some analysts suggest that the price of gold is being inflated by a flood of new investment money (implying it might be overvalued), others predict even further price growth down the road. Either way, the argument can be made that gold offers sufficient benefits (inflation protection, currency hedge, portfolio diversifier) to warrant at least some representation in your collection of assets.
Frequently Asked Questions
what is the value of an eisenhower silver dollar collection 1971-1974,1976?
box set has 5 silver dollar coins,1971,1972,1973,1974,'1776-1976'
Not enough information to give you an estimate. Is there an S just below Eisenhower's neck. If so then you have a 40% silver set which gives it some extra value. You also do not mention grades which is critical to determining a value. Without a mint mark the coins must be uncirculated to have any collector value. If they were taken out of circulation then they are only worth face value. If they are an uncirculated set the retail price can range from to several hundred dollars depending on the grade and what version of the 1972 you have.
I would suggest you take them to a dealer so he can tell exactly what you have.
Does anybody know the value (or anything!!) about a gold-plated 1974 Eisenhower dollar?
I have a 1974 (No mint mark/Philadelphia) Eisenhower silver dollar, except it's not silver, it's gold!!! I've been searching the internet all day and can't find ANYTHING helpful about gold/gold-plated Eisenhower dollars! Does anybody have any info about these type of coins at all?
There is literally only a few cents worth of gold required to plate a dollar-sized coin. Therefore, yours is worth only what someone is willing to pay. No true collector of the Eisenhower series will want one of these because something has been done to it after leaving the mint, so the interest in one will come only from collectors of oddball coins. Sellers can ask anything they want, but in my opinion, it's worth no more than .
I have eisenhower dollars in very good circulated condition ,are they worth much more than face value?
None are silver ,1971-1974
No. If you want to know the exact value you can google it or go to coinsofamerica.com
Can anyone tell me the approximate value of my coins?
I have some older coins I have found or bought from out of my till at work. All of them are cerculation quality, so some are not in the best of shape. the list includes:
11.1955 D x2
Suzan B. Anthony Dollar
3.Bi-Centennial 1776-1976 –
I cannot but I often go here for help on my coins:
You do have to register to get on the forum. Then you may be able to copy and paste your list so you don't h ave to type it over again........
Sounds like you may have some worth some money so check it out....