Dividends and Losing its lustre: Why investors are shunning gold

Most of us know who Midas is and similar to Midas there are many people who love gold. As an investor you will sometimes look at the world, the sabre rattling which goes on, central bank increase going up and wonder should you own some gold to protect yourself? It is a good question because unless you own a company which produces gold and has a dividend, the gold price has not moved in the direction you would want it to.

Niall McGee the mining reporter at the Globe and Mail looked into the gold sector. The Toronto Stock Exchange is one of the biggest mining exchanges which is why the Globe has a mining reporter. Since late 2011, gold has peaked at $1,900 an ounce and in late August sold for $1,190.

The difference of the $800 an ounce is causing miners worry and gold production less than $1,200 an ounce is now being looked at closing. If you own any mining company, know the cost of production, then you will known what to do when the price of the commodity goes up and down.

While everyone is drawn to gold, kings and queens have used gold for generations, all the gold mined in human history can fit inside 2 1/2 Olympic sized swimming pools. Most of the gold has little value outside of gold jewellery, coins, bars. (A little while the writer watched a B movie which had its plot, someone who was trying to find the lost city gold of the Aztec Empire and another person who had most of their wealth tied to investments in the gold industry. If the lost city was found, some its gold would end up on the markets to depress the price. The second person was trying to stop the first person from finding the lost city).  It used to be all governments had gold bars backing their currencies and up to President Nixon, the gold standard was considered the best method to back up currencies. nowadays, the dollar is backed by the infrastructure of the country among other considerations.

There have been countries whose economies were and continue to be devastated by hyper inflation, but they tend to be countries very dependent on a commodity and the price of that commodity which allows for the rest of the world to adjust to it and its citizens to use another countries money for carrying out transactions.

We do not know what will happen and there are always people who have been gold bugs and others who believe that one can live without investing in gold, outside of personal gold jewellery, but as Mr. McGee writes gold has always moved in mysterious ways, and predicting where it might go next might be a fool’s errand.

Linking to dividend paying stocks, if you love gold investing try to pick companies which have reasonably low costs, low debt and can pay a dividend. In this fashion you are protected from the price increase and decreases. There are some very low-cost producers and then what happens will happen.

There are more questions than answers, till the next time – to raising questions.

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