09 | EDUCENTRE » ABOUT GOLD

Why Invest in Gold?
Why Buy Gold Stocks?
The Uses of Gold

WHY INVEST IN GOLD?

Gold is the king of metals. No other can match its unique combination of beauty, usefulness and above all, value. People have been using gold for more than 6,000 years, first for jewellery, then as the primary means of exchange and now for an ever-increasing array of industrial, electronic and medical applications. As a repository of value, gold has transcended time and place in representing uniform value and preserving purchasing power. For example, regardless of the dollar value involved, one ounce of gold would purchase a good quality man's suit at the conclusion of the Revolutionary War, the Civil War, the presidency of Franklin Roosevelt, and the present day.

A Secure Asset
While scores of paper currencies have come and gone around the globe, gold has endured. Gold has provided long-tern value that does not depend on an individual's or institution's promise to pay. Gold has always provided a safe haven in uncertain times and is free of credit risk. Gold is among only a handful of financial assets that is not matched by a liability, and can serve as "insurance" against extreme fluctuations in the value of traditional asset classes that often accompany unsettled times. For more than 200 years, the price of gold has kept pace with inflation and its still represents the ultimate form of payment.

A Unique Asset Class for Investment
Gold is both a commodity and a monetary asset, and that helps to make it both different and desirable as an investment. Gold can deliver consistent value in a portfolio because it normally performs independently of other economic indicators and other investment vehicles. Gold improves the stability and predictability of returns. It is not correlated with other assets because the gold price is not driven by the same factors that drive the performance of other assets.

This independence makes it an effective diversifier of portfolios. A diversified portfolio is better able to weather market fluctuations that those concentrated exclusively in any single asset class, such as stocks and bonds. Even a small weighting of gold in a portfolio has been proven to significantly improve its ability to perform consistently during both stable and unstable financial periods. Despite its relatively low expected returns gold offers superior diversification with high liquidity and low cost.

A Highly Liquid Asset
Gold remains an easily traded asset. People can buy and sell physical gold, usually gold coins or small bars. For larger quantities, they can trade in the over the counter market for gold futures and options. They can also buy and sell gold mining equities, often packaged in gold-oriented mutual funds, or exchange-traded products securitized by gold.

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WHY BUY GOLD STOCKS?

Since the performance of gold stocks has traditionally correlated fairly well with the price of gold, they can provide investors with many of the benefits they would enjoy by investing directly in physical gold directly. For example, from 2000 to 2004, the correlation of the Philadelphia Gold Index to the US dollar gold price was about 91%.

An investment in gold stocks can sometimes provide substantial advantages over investing in the precious metal itself because these stocks provide leverage and a greater potential for growth. A gold mining company's profits are proportionately more sensitive to variations in the price of gold because the company's profits are net of the costs of mining. So investing in a gold stock will often result in significantly more upside -- and downside – if gold prices rise -- or fall -- when compared to purchasing physical gold. The more proportional impact the rise or fall in the price gold has on a company's profit – or loss, the greater the leverage.

There are a host of other factors that affect the company's overall performance and return on investment, including cost structure, management, size and scale, liquidity, balance sheet and the quality, extent and growth of reserves.

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THE USES OF GOLD

Gold has amazing physical properties that have made it both highly appealing as well as incredibly useful. One troy ounce of gold can be drawn into a single wire 85 km (50 miles) long – or be worked into a single sheet of filigree that covers 9 square meters (100 square feet). Jewellery fabrication accounts for nearly 85% of gold consumption in the U.S., with dental and industrial consumption at 10% and 5%, respectively.

Gold's excellent electrical and thermal conductivity, reflectivity and non-corrosive quality make it the metal of choice high tech and aerospace industries. Also, modern medicine is taking advantage of gold's non-toxic and biologically benign properties to enable longer, healthier lives. Here are a few of gold's newer uses:

• Gold-plated interiors on lasers give off a more focused beam, helping save the lives of heart patients suffering from once-inoperable heart conditions and tumors.
  
• Gold-plated thermometers give accurate body temperatures of newborns and unconscious patients.
  
• Biochemists use gold to bond with complex and compound materials, such as proteins, to create needed drugs.
  
• Researchers place gold on DNA strands to study the hybrid genetic material of cells.
  
• Airbags depend on gold-coated contacts and electronic sensors for reliability, saving hundreds of thousands of lives in the past 15 years.
  
• Gold-bonded compressor vanes on commercial airliners cool turbines from exhaust that can reach up to 1150 degrees Fahrenheit.
  
• Gold-coated infrared equipment detects a dangerous build-up of carbon monoxide and other air pollutants.
  
• Miners rely on gold-activated sensors to warn of low levels of oxygen and trigger an automatic replenishment in seconds.
  
• Gold protects spacecraft and astronauts from infrared radiation and intense heat of the sun. Gold coating protects the vital lifeline tethering astronauts to the ship on spacewalks, while a gold-coated visor shields their eyes are shielded from the sun's rays.
  
• Four miles of gold-brazed tubing safely carries liquid hydrogen in the space shuttles' rocket engines without melting the nozzle at operating temperatures of up to 6000 degrees Fahrenheit.
  
• Sheets of gold-coated Mylar deflect heat that would otherwise degrade the performance of geo-stationary weather satellites.
  
• Gold coatings protect all parts of the electronic camera in the Hubble telescope to insulate against heat damaging its celestial snapshots.
  
• Gold circuitry is critical to the reliable performance of computers, electronics and telecommunications. Since gold does not corrode under normal atmospheric conditions, it protects the uninterrupted flow of data and reliable functioning of equipment.

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