Gold,as many are aware, is becoming an important part of the asset profile of an investor. In the coming months, inflation is likely to become an important concern. There is no better hedge to inflation than gold.The currency of every country is backed by gold. The central bank of the country needs to have gold in in its vaults to maintain the value of its currency. In 1930 the value of 1 ounce of gold was set at $35. That is, for every $ 35 in circulation there was 1 oz of gold with the Central Bank (The Federal Reserve in case of the USA).
Later, the value of currency was changed to make $70 = 1 oz of gold. While the gold standard was abandoned by the USA in 1971, even today currency is backed by physical gold reserves. Just like it is necessary for the Central Bank to keep a physical quantity of gold (gold bars) in in vaults, it is also necessary for individuals to have physical reserves of gold stored securely in a bank vault.
In case of severe inflation, currency and bank deposits will rapidly lose value. Investments in gold bonds and other similar instruments, where gold is underlying commodity, is not as good as gold in its physical form. Gold bonds and other market traded forms (ETF or Exchange Traded Funds) of gold may lose their value due to the vagaries of market conditions. Besides entry load and fund managements cost affects the return from ETF gold.In times of hyperinflation, there may not be enough buyers in the exchange to buy ETF gold.Therefore, physical gold (bullion) of a high purity level is essential for a well balanced investment portfolio. Gold dealers like Bullion by Post play an important role in delivering physical gold or gold bars to investors.
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