If you think your money is backed by anything other than the full faith and credit of the federal government, think again. Federal Reserve notes haven't been redeemable in gold since Jan. 30, 1934. The government's monetary policy to combat the Great Depression involved inflating the money supply, which resulted in a decrease in the value of the dollar. Buying gold and silver bullion is often touted as a hedge against inflation.
Gold and silver are precious metals that have been used as a medium of trade for thousands of years. In contemporary society, gold and silver are no longer used as a form of money, but some people still like to own bullion as a tangible source of wealth to offset the vagaries of inflation. The idea is that while the purchasing power of the dollar has steadily declined, the purchasing power of gold and silver has remained stable.
Investors who are bullish on gold, known as "gold bugs," assert that paper money has no inherent value beyond that ascribed to it by the government. Gold and silver are tangible assets which have inherent value based in part on their industrial uses and in part on their scarcity. While the government can print up as many dollars as it wishes, there is only so much gold and silver available in the world.
You can gain exposure to gold and silver by investing in precious metals exchange traded funds, gold and silver mutual funds or the stocks of precious metals mining companies. However, owning gold or silver bullion gives you access to the physical investment. Bullion is available in small size coins, bars and ingots that can be easily stored in a home safe or bank safe deposit box.
There are advantages to buying gold and silver bullion as a portion of your diversified investment portfolio, but there are some considerations to be aware of before you take the plunge. Not all gold and silver bullion is created equal. Gold and silver bullion comes in different levels of fineness, or purity. Some bullion coins contain different percentages of the precious metal than others. For example, American Eagle gold bullion coins are .9167 fine, or 22 karat, while Vienna Philharmonic bullion coins have a fineness of .9999, or 24 karats. The Federal Trade Commission advises investigating both the bullion and the seller before you invest in gold or silver bullion.
- History: FDR Takes United States Off Gold Standard
- Federal Reserve Board: Is U.S. Currency Still Backed By Gold?
- American Bullion: The Benefits Of Buying Physical Gold And Silver
- World Gold Council: Why Invest
- American Precious Metals Exchange:
- Federal Trade Commission: Investing in Bullion and Bullion Coins
- Monex: Buying Gold Coins
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.