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Gold Medal Software Volume 2 (Gold Medal) (1994).iso
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INTRO.TXT
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1993-09-24
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GOLD -- THE PILLAR OF SECURITY
Gold is a traditional means of inflation protection.
Some investors have been disappointed with the
performance of gold in the past decade, but they are
forgetting the primary purpose of gold as an inflation
hedge. There has been very little inflation in the
American economy in the past decade -- so there has been
nothing to be protected from. This does not mean that
gold has been a bad investment. The proper comparison is
not to other investment performance, but to buying life
insurance and not dying. The gold did exactly what it
was supposed to do in the investor's portfolio --
provided a store of value with inflation protection.
An investor who is paying attention to the current
price of gold is completely missing the point.
Speculators have often lost badly with gold, but
that is true of any speculation, and is not because of
some inherent characteristic of gold. This speculation
is very different from the proper use of gold in an
investment portfolio, as a way of achieving balance,
diversification, and inflation insurance.
To put an entire savings program into diversified
paper investments, without a gold diversification, is not
a truly balanced plan. The security of the Swiss franc
is one step in that diversification, because of its
strong gold backing, and its traditional strength as a
currency. But only a step. The next step is to also
diversify some of the portfolio into a pure gold
investment.
Every paper currency buys less than it did at the
turn of the century, but gold buys almost two times more.
That is true inflation insurance, and has nothing to do
with overnight speculations on a belief in short term
price trends. There is nothing wrong with speculation,
but it should not be confused with balancing the
portfolio. In fact, a small percentage of any
diversified portfolio is devoted to speculation.
As we have seen in the history of money section,
paper money inevitably declines in value and purchasing
power. In an era when most governments have legally
freed themselves from any requirement to act responsibly
or tie their paper to real assets, This makes it
particularly important for the investor to create his own
"reserve fund" since the government's paper money no
longer is required to have one.
For thousands of years, gold has been man's premier
store of value, more trusted worldwide by individuals
than any paper investment or paper currency. Gold cannot
be inflated by printing more of it. It cannot be devalued
by government decree. And, unlike paper currency or many
other kinds of investments (such as stocks and bonds),
gold is an asset which does not depend upon anybody's
promise to repay.
Although gold has been mined for more than 6,000
years, only about 110,000 metric tons have ever been
produced. If you could bring it all together, that is
just enough to make a cube measuring only 18 meters
(approximately 55 feet) along each side. Gold is one of
the scarcest, and so most sought-after, metals on earth.
Gold cannot be fabricated by man. Nature limits its
supply. the amount of new gold mined each year totals
less than 2,000 metric tons -- an amount that could be
fitted comfortably into the living room of a small modern
house.
Throughout recorded history, gold has held its value
against inflation. Experts say, for example, that the
same quantity of gold is needed to buy a loaf of bread
today as in sixteenth century England. This is why so
many investors world-wide see it as the "ultimate asset"
-- an important and secure part of their investment
portfolios.
Gold has an international value that tends to
respond to the changes in value of national currencies.
Time and again, gold has proved a successful hedge
against the devaluation of an investor's national
currency.
Gold is one of the few investments that has survived
-- and even thrived -- during times of economic
uncertainty. Gold is man's classic hedge against almost
any monetary crisis, moving independently of paper
investments.
For example, in the slump following the "Wall Street
Crash", from September 1929 to April 1932, the Dow Jones
Industrial Index slid from 382 to 56 -- a drop in value
of 85% -- and some 4,000 U.S. banks closed their doors.
Meanwhile,the price of gold actually went up.
Gold also increased in value during the events
following "Black Monday", October 19, 1987, when the
Morgan Stanley index of world shares fell 19% over 10
days. And during the mini-crashes which have afflicted
the stock markets since then, gold has held its value and
ignored the travails of share investment.
Gold is essentially a long term investment with
daily movements in price and there is no tactic to ensure
that you make your purchase at the best possible time.
One of the best ways to build up a keenly priced
gold portfolio is to purchase relatively small amounts,
on a regular basis, over an extended period. This is
called "cost averaging". This will ensure that your
total investment will have been acquired at the average
gold price during the period of your investment program.