Tuesday, September 8, 2009

Gold Value, Investing, and Risks

I mentioned investing money in gold as being 'safe'... but JUST REMEMBER, I am not a financial advisor. I am not completely sure gold is a truly safe investment in this country, either, based on our history.

In April 1933, President Franklin D. Roosevely issued
Presidential Executive Order 6102, which confiscated all gold coin, gold bullion, and gold certificates within the continental United States. The stated reason was based on "An Act to provide relief in the existing national emergency in banking, and for other purposes~"

An individual was allowed to keep up to $100 in gold. Failure to comply with the Presidential Executive Order could result in fines of $10,000 and 10 years in prison.

Having said that, let's look at the
value of gold. The price of gold on the market today is very close to $1,000 USD per troy ounce of gold. But what does that really mean? Well, what you can buy with an ounce of gold today isn't really very much more that what an ounce of gold could buy 50 years ago, although the purchasing power of gold has increased, while the purchasing power of the USD had decreased. In other words, it takes more dollars to buy milk, or a car, today than 50 years ago.

When gold coins were "withdrawn" from circulation in 1933, the gold "standard" to back the US dollar was reduced from 23.22 grains to 13.71 grains. There are 480 grains of gold in one Troy ounce of gold. (Troy is the measurement standard for metals; 12 Troy ounces = 1 pound, whereas 16 Avoirdupois ounces = 1 pound.)

So, the USD changed overnight in value; it had been just over 20 dollars for an ounce of gold, and overnight it went to 35 dollars for an ounce, becoming generally called "the gold standard" which remained in effect for many years. Richard Nixon finally took the US completely off the gold standard in 1971.

When I was a youngster, our US paper dollars were marked "silver certificate" which meant they could be exchanged for silver. Now they say "Federal Reserve Note" but they can no longer be redeemed for silver, only for more notes. Government currency backed only by the power of the government is called a "fiat" currency, and is only as good as the government.

If you watch much television, especially late at night, you will see many commercials by companies buying scrap gold jewelry. (In fact, some of that business has been in the news lately due to lawsuits and press about the pitiful amounts they pay for gold.)

Those are companies are trading dollars of varying value for gold of known value.

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