Why Gold Is Such A Good Investment
Gold has always been one of the preferred investments of people all over the world. The reason for that is because it is one of the safest forms of investment available. Not just today, but historically.
Gold prices may fluctuate to some extent, but in the long term, gold always appreciates. To understand this better, go online and check out the price of gold over the last 5 years. Then have a look at the prices of gold coins and what a Krugerrand would have cost you 5 years ago and what it will cost you today. And finally have a look at the way gold futures and options have moved over the last few years. The picture becomes quite clear. Gold may have its ups and downs but over a period of time, the highs more than compensate for the lows.
The best thing about gold is that its value is not affected by economic conditions or conflicts. Governments continually print out more and more paper money to pay off their debts. It’s their right to do so but the more money there is in circulation, the less value it has. But no one can produce more gold and its price cannot be manipulated by governments.
Gold does well in times of inflation. Investing in gold at these times is always a good option, since the value of gold will increase in inverse proportion to the fall in the value of the currency. And in times of deflation, when governments print out huge amounts of extra currency to stimulate the economy and pump huge amounts of their reserves into the market, the increased money supply means there is more money to buy gold with and this once again drives up the price.
And of course in times of international conflict, gold is the one item whose value will increase. People in zones of conflict, look upon gold as the one safe and easily transportable asset that will have its value when the war is over, irrespective of which side won.
The bottom line? Gold will always be in demand and is availability will always be limited. This insures that its value will always be high.
What Is A Karat?
Everyone has come across the term Karat, in relation to gold or gold alloys. And we all know the higher the number of karats, the purer the metal. But how exactly does the system work?
First of all, we need to get the spelling correct. In the US and Canada the word is spelled karat while the rest of the world spells it carat. The abbreviations are kt and ct respectively.
Karats are a measure of the purity of gold. It is based on a system of 24ths. That is 24 karat gold is the purest gold possible (99.9% pure). 18 Karat gold is 18/24 (or 75%) pure and 12 Karat is 12/24 or ½ or 50% pure and so on.
Historically, for greater accuracy in measuring the purity of the metal, a karat could be divided into four “grains” and each grain, in turn, could be divided into four “quarts.” For example, gold that is between 18 and 19 karats in purity could have been described as being 18 karats, 2 grains and 2 quarts (18.5 karats). Today these finer measurements are no longer in use.
Karats are increasingly being replaced by the millesimal fineness measurement which allows for greater accuracy. Millesimal fineness is a system of rating the purity of precious metals by denoting the quantity in an alloy in terms of parts per thousand. For example an alloy that is 90% gold will have a millesimal fineness of 900. The millesimal number is usually rounded off to three digits and fractional measurements are not used.
The word karat has an interesting origin. It is derived from the Greek word Keration or “fruit of the carob” – an evergreen shrub. Carob seeds were thought to be uniform in weight and were used on precision scales to weight diamonds and precious metals.
In the US, the Fair Trade Commission has standardized the use of karat markings on gold. All gold items made of 10 karat gold or higher levels of purity must carry a stamp of either “K” or Kt.” Infractions of this law can have serious consequences including large fines.
What Is A Hallmark?
In modern usage, a hallmark is a distinguishing characteristic or trait. For example we say “Honesty is the hallmark of a good judge.” But the origins of the term comes from the practice of making a mark on precious metal – gold, silver, platinum and palladium – to signify that it meets certain standards of purity and quality.
Hallmarks first came into being when reputed craftsmen such as gold and silver smiths placed a distinguishing mark on their products to denote that they had made it and that it was up to their standard. A gold platter with the mark of a reputed craftsman would be worth more than a similar piece without such a mark because the value of the marked piece was guaranteed by the maker. Obviously the greater the reputation of the craftsman, the more value the hallmark was given.
Over time, the craftsmen formed themselves into guilds or unions. And these guilds took over the tasks of marking the products made by their members or allowed their members to place the marks of the guild they belonged to on what they produced. Thus a member of the goldsmith’s guild could place the common mark of his guild on everything her produces. This signified that his products met the standards of the guild. Since the guilds held their meeting in large halls, the mark that the members were authorized to use was known as a hallmark.
In time, the responsibility of certifying the purity of precious metals was given to independent bodies known as assay offices. The word assay means to test and the institutions test the purity of precious metals and certify them so that the consumer knows what he is buying and can not be cheated by being sold impure metals and alloys under the guise of pure metals.
This practice continues today. A common mistake people often make is confusing the trademarks and hallmarks. Trademarks are the sign of the party that has made the object so its origin is known. Hallmarks are the sign of the purity of the metal used in the manufacture. In all countries with a formal hallmarking scheme the manufacturer is first required to certify the purity of the metal used. The object is then assayed to confirm that it is as pure as is stated and only then is the hall mark applied.
What Does The “Sterling” In Sterling Silver Mean?
The term “sterling silver” refers to an alloy that is made up of 92.5% pure silver and 7.5% of other metals, most often copper. Sterling silver is the most common form of silver and is used in the manufacture of functional items like cutlery. Pure silver is far too soft and ductile to for many applications, except for jewelry and electronics.
The terms sterling has come to mean good or pure as in a reference to a person’s “sterling qualities.” The origins of this phrase are obviously from the valuable and decorative alloy. But how exactly the term “sterling silver” came into being has been lost in time. However, there are three theories about its origin, none proven and each having its own adherents.
The first, and perhaps most plausible, theory is that the terms comes from “Easterling Silver” which was the currency of a part of Germany in the 13th century. This region, known as the Easterling was engaged in a great deal of trade with Britain. The payment for British produce was made in the German currency of 92.5% pure silver coins. The purity and the accurate size and value of these coins were greatly respected by the British who soon adopted the standards of the currency of the Easterlings as their own. Easterlings soon became Sterling with local use.
The second theory is that the name comes from a bird. Ancient British coins often had images of birds engraved on them. It is thought that a popular silver coin could have borne the image of a Starling. It is possible that the coins were know by the names of the images they carried and so this coin would have been known as a Starling or Sterling since the origin British spelling of starling was “Stearling.”
The last theory is based on the fact that in the early 18th century, a rich deposit of silver was discovered in a part of Scotland then known as “Sterlingshire.” This was the largest deposit of silver in the British Isles and contained more mercury than silver found in other places. It is thought that it became known as Sterling Silver to differentiate it from silver with different compositions.
Whatever its origins, the term sterling silver; today stands for metal of strength, purity and value.
Understanding The Gold Standard
The term gold standard refers to the practice of valuing a nation’s money against gold. In other words, if a country is willing to allow its money to be exchanged for the equivalent value of gold, it is on the gold standard.
Most nations, including the USA adopted the gold standard as a way of valuing their currencies until the mid 20th century. It is now no longer in use. It is important to note that while it was theoretically possible to approach a nation’s central bank, and ask for a specific value of currency to be exchanged for gold, in practice it was rarely, if ever allowed. Still, it was the amount of gold that a country possessed that accounted for its wealth.
However, in 1931-2 Britain abandoned the gold standard. It took the US 40 years to follow suit – gold was abandoned in 1971. In fact, it was in 1971 that for the first time in recorded history, no country had currency that could be redeemed in gold. Today a country’s currency is calculated on the basis of a complex series of variables including its Gross National Product, bank deposits and a host of other factors. This is why it is known as a “floating currency” system and why variations in the production of goods and services have such an immediate impact on currency values.
Gold is still retained by countries because its price is purely market driven and its value, which cannot be control by legislation of political maneuverings. It is therefore now an asset that can be traded rather than the basis of evaluation a nation’s wealth.
In the USA, it was at one time illegal for a citizen of the country to own gold – the theory being the dollar was the equivalent of gold so owning dollars was good enough. This law was changed in the 1970s and the last tie between the dollar and gold was cut. The US government stopped issuing gold coins as legal tender in 1933, although the US mint still issues gold coins of varying denominations which are collector’s items only.
Understanding Sterling Silver
Many people are under the mistaken impression that sterling silver is pure silver. That is incorrect. Pure silver is metal that is 99.9% pure. Sterling silver is an alloy made up of 92.5% silver. The balance 7.5% is made up of other metals, the most common of which is copper.
Pure silver, also referred to as fine silver, is a very soft metal and being so ductile and malleable cannot be used for the production of any items that have a functional purpose or are under stress or pressure. Under these conditions pure silver objects will lose their shape and structural integrity. Pure silver is most used for making fine jewelry where its softness is an advantage when fine workmanship is required.
Large silver items are usually made using silver alloyed with other metals like copper or titanium which provide the alloy with strength and rigidity. Since sterling silver must have 92.5% pure silver, it is strong yet ductile enough for shaping into intricate pieces of cutlery and so on.
While the silver content of sterling silver remains fixed, the other metals used to make the alloy may vary so that the alloy is best suited for a specific application. This may include using metals that will increase the resistance to tarnishing, eliminate firescale and even reduce casting porosity. Among the metals most often used to create the alloy are platinum, zinc and germanium. Additive are sometimes added to the alloy when the final application requires it. Sterling silver containing silicon and boron are common.
Irrespective of the other metal used to create the alloy, sterling silver is valued on the basis of its fixed silver content of 92.5% and the other components of the alloy are not taken into account. Sterling silver will always be sterling silver even if the 7.5% is made up of tin or the basest of metals.
A lot of development is being done on sterling silver, and experiments using a variety of other metals and compounds are constantly being tried. However, as of now copper is still the most common other metal used to make the alloy.
The Social Implications Of Gold Discoveries
No metal, in fact no substance of any kind has been so lusted after, so loved, caused so much happiness and has been responsible for so much death and sorrow as has gold.
Gold is one of the first metals known to man and the word comes from an “Olde English” word – geolo which means yellow. It is a soft malleable metal with a mesmerizing glow to it. It is easy to work with, and the ancient Egyptians were expert goldsmiths who were able to create intricate pieces of jewelry from this metal. It can be drawn into a fine wire or hammered out into thin leaf – the Egyptians were able to hammer it so thin that it took over 350,000 leaves to make a pile one inch high.
Gold is both, rust and corrosion resistant which gives it many commercial uses, besides the best known one for being the base of great jewelry. Everyone from economists to historians to poets have tried to explain the allure of the metal, but no one has succeeded. Perhaps is just the perception of the beauty of the metal that makes it so wanted. Gold is seen as the “ultimate”, as in an Olympic gold medal (which is actually not made of gold).
Its rarity makes gold one of the most valuable of all metals. The sources of gold are few and far between and the discovery of gold has always had huge political and social implications. The California gold rush of the 19th century is an example of this – it led to the opening up of the western part of the continent. In 1851 gold was discovered in Australia and by 1860 the population of that country had tripled. The same kind of thing happened in New Zealand when gold was discovered there a few years later. The city of Johannesburg was founded when gold was discovered in South Africa. As a matter of fact, gold was the bedrock of the country’s economy for many years. The Yukon was opened up only after gold was discovered there at the end of the 19th century. Wherever gold has been discovered or even rumored to have been discovered, the effects on the society of the country and on the population densities of the region have been major.
Platinum Coins
Platinum investments took a new turn in 1983 when the Isle of Man, a British Crown Possession which is entitled to use its own currency, issued one ounce Noble made of platinum. It opened the door to investing in platinum coins –something which wise investors had been waiting for. Legal tender made of bullion, be it gold silver or platinum is considered by most investors as the safest way to own the metal. The value of the coins in terms of weight and purity is backed by a government and so there is no need to assay them. They are also highly portable and the aesthetics usually only add to their appeal.
The huge success of the Isle of Man’s initiative in issuing platinum coins inspired other governments to also take the plunge. Within five years of the Noble coming into circulation Australia issued the Platinum Koala and Canada the Platinum Maple Leaf as legal tender. Although both coins made their appearance within a few months of each other, they were highly successful and were in great demand by investors.
For the next nine years Australian and Canadian coins were the leading platinum coins in the world. During the 1990s a number of limited edition high value platinum coins were issued but they were for numismatic purposes only and were collectors’ items and not legal tender.
In 1997 the US Mint finally joined the platinum bandwagon with the launch of the Platinum American Eagle. The arrival of this coin saw the investment levels double in the space of just one year. The Platinum Eagle soon became the preferred platinum investment option and the demand for these coins was so great that most denominations sold out almost immediately. In 1998 the US mint launched the Vistas of Liberty series of Platinum coins in a limited time program that ran till 2005.
While the modern investor in platinum has the options of investing in the form of exchange traded futures and options, bullion bars, and numismatic coins, legal tender coins remain extremely popular with those who prefer to have the purity of their investment backed by government guarantee as well as the ease of exchange and conversion that these coins offer. Another benefit that many investors like is their easy storage and transportability.
Investing In Platinum
The uses of platinum are expanding on a daily basis. Studies estimate that one in five of all goods manufactured either contain platinum or need platinum for their production. One of the biggest users of platinum is the automobile industry where platinum is used in catalytic converters to convert harmful engine emissions into carbon dioxide and water. This alone accounts for the consumption of nearly one third of all platinum produced in the world each year.
The problem lies in the fact that platinum is so difficult to come by. Between 5 and 6 million ounces of platinum are mined each year and that too under the most difficult of conditions. 5 million ounces is less that 5% of the world’s gold production. Obviously it is a rare and difficult metal to obtain.
Platinum’s scarcity and ever increasing applications make it a very attractive investment option. The history of its price performance is drawing the attention of investors who until recently never looked beyond gold and silver. Precious metals are known for the fact that they normally appreciate when other investment options like stocks and bank deposits are offering low or even negative returns. That is what makes gold and silver so popular as investment options.
What more and more people are coming to realize is that in the case of platinum, not only is the safety of hedging against the drop in the value of other investments available, but so is the opportunity for huge capital appreciation. The limited availability and increasing demand for the metal ensures this. Studies estimate that should platinum mining come to a halt for any reason, the above ground reserves of the metal will only suffice to meet one year’s demand. In the case of gold, should the same thing happen, the above ground reserves would be enough to last for 25 years.
There are two factors that determine the value of a metal – its availability and the demand for it. Clearly platinum is one of the rarest of metals. And it is one with the fastest expanding range of application, driving up its demand. Smart investors have kept both these factors in mind while investing in platinum.
American Buffalo 24 Karat Gold Coins – The Return Of The Indian Head
The Indian Head or Buffalo nickel was launched by the US Mint in 1913. It was designed to depict the spirit of the American West. The artistry of these old coins has been brought back to life by the production of the American Buffalo 24 karat gold coins. These were authorized in December 2005 by Public Law 109-145, or the Presidential One Dollar Coin Act as it is better known.
The images on the obverse and reverse of the coin are the same as those on the 1913 nickel. These were created by the noted sculptor James Earle Fraser. The obverse of the coin features the head of a Native American tribal chief and is modeled on three different individuals – Chief Two Moons of the Cheyenne and Chief Iron Tail of the Lakota Sioux. The third person remains unknown. The reverse of the coin shows the American Buffalo and is thought to be a depiction of a Buffalo in the New York zoo at that time.
These coins are offered for sale to the general public through a chain of authorized outlets including precious metal dealers, brokerage houses and banks that have chosen to participate in the sale of these coins. They may also be purchased directly from the US Mint. This is the first time that the US Mint has ever struck a .9999 fine 24 karat gold coin. The $50 coins are a simple way for members of the public to invest in 24 karat gold. Owning these coins is safe because they are legal tender and their purity is guaranteed by the government. A Certificate of Authenticity is provided to the buyer of the coins.
These coins are a great investment for those who want their savings to be in the form of a tangible precious metal. While gold prices do continue to fluctuate, historically gold investments have always prospered in the long term.
While the coins have a face value of $50, the actual retail price is dependant on the price of gold at the time of purchase and will be fixed from time to time by the US government.
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