When you look around the world right now there aren’t a lot of great investment opportunities. The FTSE 100 was at a 6 month low of 5007 last week as investors panicked over the UK’s increasing budget deficit and the US markets are no better.

by Giorgio Montefiore via Flickr

The past week saw the Dow Jones Industrial Average have 3 top 11 down days (in the space of a week!). Last week’s 5 day price change showed a -9.89% decrease in the Dow Jones. Can you imagine losing up to 10% of your savings in one of the leading investment markets in the Western world within the space of a week?

This is why so many investors have been turning to gold right now. Traditionally gold has been seen as the “all-time” hedge against economic failure, currency devaluation, market collapse and inflation. However, while the above is all true, gold has also showed strong signs of returns for investors and hedge fund managers over the last decade.

If you haven’t been keeping up to date with gold news than you should know that the price of gold has rocketed from $1,600 per troy ounce up to a record high of $1,813.79 in August. The 10% growth of gold prices in a single month is unprecedented and is a reflection of just how poorly the economies are being run.

Although gold has settled at $1,737 and is growing much at a much slower rate (around 0.5% per day) compared to the beginning of the month, the gold price is only expected to increase as fears of QE3 (quantitative easing) in the US, France and the printing of money in the UK will devalue the US Dollar, Euro and British Pound.

You need to understand that the printing of US dollars (Quantitative Easement) by the Federal Reserve is inevitable. The entire US debt is higher than the total GDP and the only way to manage the interest rate payments is to print more money. The printing of US dollars leads to a declining value of the US Dollar which then hikes the gold price up.

What we’re seeing right now in the markets is a prediction of higher gold prices, which leads to higher demand for gold. I don’t think it’s too late to buy into the gold investment scheme and if you buy gold now you can be fairly confident that it won’t lose its value. Analysts at Bank of America Merrill Lynch have already forecast a 12 month price increase up to $2,000 while price targets at the recent GATA (gold anti-trust Conference) last week included $6,000 – $8,500 over the next 3-5 years. Even J.P. Morgan recently said that gold could trade as high as $2,400 – $2,500 per ounce by the end of 2011.

I wrote this article about investing in gold within the current pretense of the economic markets. However, investors have always recommended investing between 5-10% of your total assets in gold. This isn’t my opinion it’s just a well known piece of advice in asset management. Annual gold production is limited nowadays to around 2,000 tonnes (peaked at 2,500 tonnes in 2008) and it doesn’t nearly meet the demand of the emerging Indian/Chinese markets and burgeoning jewelry industry.

In my opinion, you probably should be investing in gold even if just a little bit of your income given the market conditions right now.

Surely there must be a downside to all this gold investment malarkey? Of course there is. Buying gold isn’t without its risks. If investor’s demand for gold decreases (demand from investors has currently hiked up to 40% as opposed to its natural 15% over the last few decades) than it will have a degrading effect on the price.

Gold bullion doesn’t really have much “inherent value”. The huge upswings in gold prices have been driven by speculative demand. And this would massively decrease if the main economic markets and currencies were to improve. In my opinion however, and given the deplorable outlook of major Western economies, this is very unlikely to happen in the near future.

In conclusion, I’m not suggesting that you should invest everything you own, sell your house and buy gold right now. But from a purely financial perspective you are better investing in gold as an insurance against any pending economic/sovereign debt rather than tying your money in real estate or stock markets. Some of the best places where you can buy gold online within a few clicks are APMEX (American Precious Metals Exchange) and BullionVault.com.

Commissions for gold are usually pretty cheap nowadays which is great for first time buyers. You can expect to pay a maximum of 0.8% in fees at BullionVault.com or if you’re buying gold bars from APMEX.com you can find prices from just 2-5% above the spot price.

This article was written by Adam Grunwerg, the editor and lead researcher at BuyGold.co.uk. Adam has years of experience buying and trading gold with more than $5,000 in his investment portfolio.

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