Buy Gold: Investment or Speculation?

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Buy Gold: Investment or Speculation?

Once, a husband and wife entered a gold shop. After looking at several models of jewelry in a row of front windows, the husband was then interested in knowing the price of precious metals produced in the form of bars and coins. He enthusiastically began asking the price per gram of gold bars. Meanwhile his wife’s face looked somewhat sour because he apparently wanted a strand of gold necklace.

The husband argues that if you really want to invest in gold, you should keep pure gold in bars or coins, because the value will be more stable than jewelry. He said, the value of gold in the form of jewelry is not only determined by its gold content, but also the cost of its manufacture and design. If the design is considered out-of-date, there is a possibility that the value will be below the world gold price. Moreover, the gold level is only around 70%.

The wife argued, if they kept gold bars, they had to bother thinking about how to store the gold. Inevitably they have to rent safe deposit boxes. While if in the form of jewelry, the wife just wears it. The husband replied to the argument, that even if used as jewelry, there was still a risk of being lost or snatched. And so on … and so on …

Which one is true?

Actually there is nothing wrong with the choice of storing gold bars or jewelry. Each has a plus and minus value. But there is one thing that seems to be unthinkable by the couple: do they keep gold as a means of investment or “speculation”?

The average person who buys gold intends to sell it again if the price has gone up. People call it an investment. In fact, did you know that it is actually a form of speculation?

Maybe “speculation” sounds a bit extreme in your ears. Don’t get the wrong perception first. Speculation here does not merely mean chancy or gambling. Actual speculation is the act of buying or selling a trading subject in order to take advantage of the difference in price movements. One definition of speculation is “(about) buying or selling something that might bring big profits”. This is in line with the definition of trade.

Well, so as not to be too “extreme”, it is good to use the word “trade” just to replace the word “speculation”.

Don’t get me wrong, investment is different, you know with trade!

There is a fundamental difference between investment and trade. We take a simple example: land.

For example, there is someone named George who has 1,000 square meters of land. When he buys land, it costs $ 80000. George did nothing on the land he owned. He let the land be abandoned, until three years later he sold it to Leo for $ 90000. George also got $ 10,000 in profit and now Leo’s land.

Leo then planted a number of sandal trees on the ground. Five years later he harvested the tree, sold it, then planted a new tree. He benefited from the sale of wood. So on.

From the two examples above, George is said to trade on the land he owns. The profit he got came from the difference in price when he bought the land when he sold it to Leo. But at the same time he lost ownership of the land.

While Leo invested in the land he bought from George. He benefited from the sale of sandal wood which he planted on the ground. Profits are obtained, but the land remains his property.

Is that clear?

“Story of a goat”

From the explanation above you can distinguish that as long as you buy something for resale, it’s called speculation. So, if you buy gold with the intention of being resold if the price goes up, you have speculated about gold.

Well, the question that then arises is: how is the form of gold investment? Can gold not be planted with sandal trees like Leo’s land?

Gold (not price) values ​​tend to never change over time. That is why gold is said to be a safe-haven asset, which is not affected by inflation.

Is it true? Doesn’t the price go up and down? Which value doesn’t change? What do you mean?

Yes, right. Maybe you don’t realize that the intrinsic value of gold never changes from time to time. An example is when your gold price converts to the price of a goat. In 1979, the price of one goat ranged from $ 1.5-2 per head. Towards the The feast of sacrifice, prices rose to $ 2.5-8 per head. Naturally because of the increasing demand for sacrifices. But we just take the average price at normal times at that time: say $ 2.5 per head.

At that time, the price of gold was around $ 12.86 / gram; That is, one goat was equivalent to about 3 grams of gold.

In 2014, the price of medium-sized goats (± 13 kg) was approximately $ 150 per head (source: the price of goats). The price of gold now (July 2, 2014) is approximately $ 50 per gram. Thus, the price of goats per head since 1979 remains worth approximately 3 grams of gold! In other words, the value of gold has not changed much at least in the last 35 years.

So, investing or trading?

Based on the story of the goat above, if you currently decide to buy gold and you will save it so that someday it can be used to buy goats or your child’s educational needs, then you can be said to make a gold investment. Even though you will later “convert” the gold into cash, basically you don’t take advantage of the difference in price.

But if you buy gold now with the intention to take advantage of the difference in price movements, it is inevitable that it is called trade.

Of course, the choice is yours, do you prefer to invest for the long term or trade. Both can even be done together.

But if you decide to trade gold in trading, you can choose one of the following two ways: buy gold traditionally (come to the gold shop, buy gold bars / jewelry), or do it online through futures brokers.

If you choose to transact online through a futures broker, make sure you do it with a quality and trusted futures broker. You also have to equip yourself with sufficient knowledge and we can give it to you. For starters, you can read our blog articles that discuss how to trade gold online. If anyone still wants to ask, please ask through the contact form

Happy investing / trading.

Read more : Investment Scams : Not Genuine Forex Trading


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