Natural Resources – Gold

Gold’s unique physical properties, its luster, easy workability, and virtual indestructability have given it a special place in the history of the world. Over centuries, gold has been prized for its rarity and beauty, and thousands of years ago became a medium of coinage, eventually becoming the formalized basis of economic life. Gold continues to adorn us, is used as an industrial metal in electronics, dentistry, medicine, aerospace and as an investment vehicle in the form of bars and coins.

The supply of gold is limited by nature itself. Thousands of pounds or ore are required to produce just one precious ounce. Gold is so scarce that all the gold that has ever been mined (approximately 135,000 metric tons) would fit into a cube measuring just 20 yards on each side. New supplies generally add less than 2% per year to the world’s total stock of gold. The largest source of demand is the jewelry industry. In recent years, demand from the jewelry industry alone has exceeded global mine production.

The reasons for investing in gold have remained much the same over history: (1) long term value, (2) asset of last resort, (3) highly liquid, and (4) as an asset diversifier. Through both hard times and times of plenty, gold endures. Market cycles are permanent facts of life, but gold has maintained its long term value. In contrast, most currencies (including the US dollar) and industrial economies have declined, which is why gold is often purchased as a hedge against inflation and currency fluctuations. There are also significant tax advantages in using it, as long as its not sold, but borrowed against. Currently, there is significant concern about potential upcoming inflation, reserve currency changes, and banking collapse, which makes obtaining gold a primary hedge.

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