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The New Gold Rush: Is It Too Late to Buy Gold?

by Guest on June 14, 2011

If you follow financial news, you’ve no doubt heard the buzz surrounding gold prices.

Gold prices broke the $1,500 barrier for the first time in history earlier this year.

With new records, you may be wondering if the time is ripe for you to buy gold. But you may also be asking yourself, “Did I miss the boat? Is it too late for me to invest in gold?

It’s not an easy question to answer since no one can predict with certainty the direction of gold or financial markets.

However, there are several economic factors which suggest a prudent investor should consider gold as part of a diversified portfolio.

ECONOMIC INSTABILITY As the world faces scenarios we haven’t seen since the Great Depression—like unprecedented government spending, high unemployment, sovereign debt issues, political turmoil—some analysts have predicted that gold will rise to several thousand dollars per ounce. It’s also worth noting gold is below its inflation adjusted record high. In 1980 gold peaked at a then-record high of $873 per ounce. In today’s dollars that would be equal to $2,383 per ounce.

THE DECLINING DOLLAR Many people choose to own gold because they view it as a potential hedge against inflation and a falling dollar. In the 1920’s, $20—either in the form of a gold coin or a printed bill—bought you a fine men’s suit. Since then, trillions of paper dollars have been printed by the government and added to our nation’s money supply. Today that $20 gold coin still buys you a fine tailored men’s suit, but a $20 bill won’t even pay for the alterations. In the past ten years, the U.S. dollar index has lost about 36% while gold prices have increased 475% (see gold chart).  The dollar is under further attack internationally as more and more countries diversify out of U.S. dollars and demand an end to the dollar as the world’s reserve currency.

GLOBAL DEMAND According to the World Gold Council global demand for gold in the first quarter of 2011 jumped by 11%. China has been buying gold at a breathtaking pace (its demand for gold has been growing by an average of 14% per year since 2001). China isn’t the only nation with an increasing appetite for gold. India, Russia and Mexico are just a few of the countries recently making significant gold purchases.

This is a paid guest post by Scott Carter, host of “The American Advisor” talk radio show

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