However, the lustrous and metallic qualities of gold, its relative scarcity and the difficulty of extraction have only increased the perception of gold as a valuable asset. While gold is a good bet against inflation, it's certainly not the only one. Commodities generally benefit from inflation because they have pricing power. The key consideration when investing in commodity-based businesses is to choose low-cost producers.
More conservative investors would do well to consider inflation-protected securities, such as TIPS. The only thing you don't want is to sit idly by, with cash, thinking you're doing well, while inflation erodes the value of your dollar. Since the beginning of civilization, mankind has considered gold as a substitute for money and a safe asset. The easiest way to expose yourself to gold is through the stock market, through which you can invest in real gold bars or in the shares of gold mining companies.
The terms spot gold and gold spot price refer to the current price at which you can buy or sell an ounce of physical gold. We'll look at the basics of gold trading and what types of securities or instruments are commonly used to increase exposure to gold investments. Regardless of the final destination of gold, its chemical composition is such that the precious metal cannot be used up, it is permanent. While business sectors, such as dentistry, electronics and jewelry, use gold in their products, there is simply not enough commercial demand to explain the very high price that markets place on the yellow metal.
China, Australia, Russia, the United States, Canada, Peru, Indonesia, Ghana, Brazil, Uzbekistan, Mexico and South Africa are currently the main gold-producing countries. As with supply, the demand for the gold market is also international and includes a variety of different industries and traders. A 14-carat gold ring has 58.3% pure gold mixed with 41.7% of a more durable metal alloy, usually a mixture of zinc, nickel, silver and copper, with a coating similar to rhodium. Before we jump on the gold bandwagon, let's first stop the enthusiasm about gold and, first, let's examine some reasons why investing in gold has some fundamental problems.
For thousands of years, gold has played a unique role in the financial systems of cultures around the world. Proponents of this rule argue that such a monetary system effectively controls credit expansion and imposes discipline on credit rules, since the amount of credit created is linked to a physical supply of gold. Investing in gold bars won't offer the leverage you would get when investing in gold mining stocks. Passive investors who want great exposure to gold miners can consider the VanEck Vectors Gold Miners (GDX) ETF, which includes investments in major mining companies.
In short, history has given gold a power that exceeds that of any other commodity on the planet, and that power has never really disappeared. We'll look at the benefits of gold, but we'll also examine the risks and difficulties, and see if it lives up to the gold standard.