Gold’s seven-year performance is nothing short of amazing.  Since 2005, bullion investors have enjoyed a return greater than 250%.  Investors who made the move to bullion would show a compound annual growth rate of 14.56% on their investment capital in a period where the S&P500 index returned less than 2.8% annually, including dividends.

So is gold a good investment? Can the shiny yellow metal continue its secular bull-run? And how can you value gold to find a fair-value price-tag?

Finding Gold’s Real Value

Commodities are priced solely on supply and demand.  Finding a value for a commodity like gold is more difficult than assigning a value to a future stream of cash.  We have to determine whether or not demand for gold will continue to outpace supply at lower prices by evaluating sources for gold demand.

Data compiled by Gold.org shows three major sources of gold demand from 2007-2011:

• 55.3% Jewelry
• 32.7% Investment
• 12% Technology

From the data above we can conclude that most gold produced and sold is never actually consumed. Gold used in jewelry or held as an investment can be recycled, reused, and returned to the market at any given time. Companies like Cash4Gold have made a killing doing just this.

The other 12% is mostly consumed in electronics.  Some is recycled, sure, but in industry it is often more expensive to recycle tiny amounts of precious metals (usually less than 1 gram) to resell.  Prices simply aren’t high enough yet.  Instead, this gold finds its place in landfills and garage sales all around the world, never to be recovered.

Betting on Others

Simply looking at the major sources of demand for gold tells us that gold is a bet on a few things:

• Jewelry demand – Is there any reason to believe that this demand will change considerably?  I find it unlikely.  A trip to your local jeweler can confirm that mark-up, not gold, is responsible for much of the cost of a new piece of jewelry.

• Other investors – As nearly 1/3rd of all gold demand is from investment interest, gold is highly-speculative.  Gold tends to rally on fear and risk-aversion.  If gold investors suddenly want 10% more gold, demand for all gold increases by 3.27%.  This simple shift in demand can vastly affect prices, since neither jewelers nor tech companies really “feel” the pinch of rising gold prices relative to the total cost of their products.  Investors push other investors out of the market, not jewelers or technology producers.

• Technology – This part of the demand equation is not price-sensitive. Newer electronics make use of trace amounts of gold – a new laptop is estimated to have less than one-half gram. A half gram is equal to $25, which when included in the price of a $500 laptop is hardly a consideration. As electronics makers all have to use gold, this cost is passed to consumers with ease.

Who Controls the Gold?

A 2011 year-end report of above-ground gold stockpiles notes that 50% of gold is held in jewelry, and 19% in investment portfolios.

Notice a few things about these numbers:

• Most gold can be returned to market at a moment’s notice as it is nearly pure in the form of jewelry or .999 pure in the form of bullion coins and bars. Keep in mind that all gold known to exist is equal to 40 years of 2011 mining and recycling production. So, if 69% of all gold is held as jewelry and investment, there exist roughly 28 years’ of mining and recycling in the hands of people who own gold jewelry or bullion as an investment. Thus, if 1/28th (3.5%) of all gold held above ground were sold on the market in the next year, one-year supplies would double.

• Investment demand from 2007-2011 is running at a pace well in excess of historical norms. If investment made up 32.7% of demand from 2007-2011 yet only 19% of all gold ever brought to surface is held as an investment. We can conclude then that investment interest in the last 5 years is 50% higher than the historical average.

Playing it Safe

Since we know that investment demand is a major driver of gold demand and market prices, anyone who invests in gold should understand that the investment is not without speculative risk.  Sustaining gold’s high price requires consistent investment demand well into the future.

I find it difficult to believe that investment interest can stay high forever.  As it takes only a small shift in investment demand to start driving up the price of gold, it takes only a small decrease in investment demand to send gold prices lower.

Given the historical ratio of gold held as an investment to total gold outstanding, it’s safe to say that investors are drunk on gold.  For how long can investors continue to purchase 32.7% of all gold brought to market, and when will we see a reversion to the historical mean of 19%?

If you truly believe you can predict the future demand from investors, gold makes for a great trade.  Otherwise, it’s safe to say that gold is a virtual Ponzi scheme – a large part of demand is speculative, and thus it will be speculators that drive future market prices.  Call it inflation, manipulation, or whatever you want – but the reality is that it is investors who define gold’s price tag.

Readers, are you bullish or bearish on gold?  Do you think it will revert back to a more historical pricing and demand?

Investing in Gold: A Pure Ponzi-Style Wager on Other Investors is a post from: The College Investor. Please check out the site at http://thecollegeinvestor.com or follow him on Twitter @CollegeInvestin. Thanks!

This is a guest post from Jonny Pean, who blogs about personal finance at Financial Wand.

College life not only enriches, but also imposes a few burdens on college students.  As you prepare to leave your mark in college, new horizon of responsibility and anxiety can choke your path. For example, how are you going to arrange the payments for respective classes, books, food, events, and so on?

It’s sad, but in our society, education does not come cheaply. However, adversity never comes without a solution, and education has scholarships, grants, and loans to help students escape from the financial burdens of a college education.

When To Get Started Looking for Aid

The final year in high school is the best time to get into the financial aid mode.  If you are puzzled about what to do, get detailed research on various schools and possible aid packages they offer.  Don’t get discouraged before making the final decision.  Do a comparative study of all your options and go for it. Here are some steps to help you along the way.

Find Opportunities Through Research

There are ample numbers of high school counselors, college financial-aid offices, and Web sites that can provide you with information about what is available to you.  Just give your potential school’s financial aid office a call, and let them know you are an incoming freshman, and they will usually lay your options out for you.

After calling the school, start looking online for financial opportunities. When you talk to the college academic or finance counselor,  ask if they have a compiled list of websites with financial aid information.  Many schools usually have already put this information together for you.

Find Scholarships

If you are going after scholarship opportunities, go after ones that you can easily get. There is no point in wasting hours in applying for a scholarship if your chances of winning the scholarship are low. You should instead focus on applying for scholarships that you have a fair chance of winning, or that are at least less competitive.  Second, you should look for contests or other competitions that you could enter to win money for school.  For example, there is the Yakezie Writing Contest, where you can showcase your writing and win money.

There are many other ways to get money for college without getting student loans or going into debt.  You just need to look around for them.

What different opportunities do you know of to get financial aid for school?

Finding Financial Aid for College is a post from: The College Investor. Please check out the site at http://thecollegeinvestor.com or follow him on Twitter @CollegeInvestin. Thanks!

It’s finally here: The summer before your first year of college. As one chapter of your life closes and another begins to take root, it’s a prime opportunity to instill sound money management–and set yourself up for a lifetime of financial stability. As you decide which courses to take, start to find your textbooks, and wonder what you’re new roommate will be like, here are a few ways to make sure you’re taking care of your finances as you navigate your way through your freshman year….

Save Your Pennies (and the Dimes!)

Working a minimum-wage or traditional “student” job can make it seem hard to be able to save, especially if you have other expenses to pay. But this is a reminder that the small bits that you do manage to save make a difference. Bit by bit, they can add up to a large sum over time, but more importantly, they’ll help you establish the habit of saving.

Make a Name for Yourself

Being on campus for the first time is an exciting experience. It’s also a time to establish your professional and academic identity. A great way to do so is through on-campus work and assisting your professors. When those first classes are in session, pay attention to what your professor is saying–you never know when their research interest may become an amazing opportunity for you to take part in (and build your resume and bank account at the same time!). If you’re unable to obtain work alongside a professor, seek out on-campus jobs in the departments/areas you’re interested in learning about and start building the college network. Chances are, these first positions will eventually open doors to opportunities that you didn’t know existed.

That “Free” T-Shirt Isn’t Exactly Free

Much like there’s no free lunch, there’s really no free credit cards. Before you start to sign up for the multitude of credit offers that will inevitably be thrown in your face as you cross the main campus building, do your research–there could be everything from annual fees to exorbitant interest rates hidden in the fine print. Additionally, using a credit card before you truly understand the nature of how credit works is a surefire way to set yourself up for potential financial failure. Unless you’re in a position to pay off what you charge and have a handle on your spending, you shouldn’t be signing up for credit cards.

The Dining Hall Provides More Than Just Lunch

While this is advice that most likely violates the rules of your dining plan, it’s certainly something that you’ll find yourself doing as your semesters go by: Taking food from the dining hall. Lest you think I’m advocating stealing, I’m really talking about it signing up for your cafeteria’s brown bag program or taking an extra sandwich on the nights where your class falls during the dining hall’s open hours. Most halls offer a service where you can reserve a pre-bagged lunch the night before, pick it up on your way to class, and not have to worry about rushing back to eat during the last 5 minutes that the hall is open. While it might not be the tastiest option, it’s far better than spending your hard-earned money on extra food.

Student Loans Should Only Be Used for Tuition, Room and Board

When you have thousands of dollars being offered to you in the form of student loan checks, it can be tempting to take out more than you actually owe to the university. However, consider that you’ll be paying interest on those loans upon graduation before you decide to bolster your living expenses. College is a time for developing your skills, future career, and network–it’s not a time to live the high life.

What other tips do you have for college freshman?

The College Freshman’s Guide to Money Management is a post from: The College Investor. Please check out the site at http://thecollegeinvestor.com or follow him on Twitter @CollegeInvestin. Thanks!

Photo Credit: Chris Willis

Getting some type of international education is extremely popular right now.  Many students are spending at least one semester, if not an entire year, studying abroad.

You can find study abroad programs at most major colleges and universities in the United States.  These programs partner with universities in other countries so that you can get credit for your degree back home.

It is estimated that more than 270,000 US college and university students studied abroad last year, while more than 720,000 international students came to the US to study.  Here is what you need to know when getting a student loan for these programs.

Getting a Student Loan to Study Abroad

If you’re a US student looking to study abroad, you can apply for a student loan to cover the cost of the study abroad program.  In order to qualify, the study abroad program must earn you credit towards your education program at your home college or university.

The safest option is for you to get a Federal Student Loan for your study program.  You can qualify for one of these types of student loans by filling out the FAFSA each year, and then working with your school’s financial aid office to process the student loan.

You can also get private student loans, which are riskier than Federal student loans, but do provide more flexibility with loan amounts and other programs.

The bottom line is that you can get student loans for your study abroad education in the same manner as you would for your education at home.

Can an International Student get a Student Loan to Study in the US?

Now, if you’re an international student studying at an approved school in the United States, you can apply for a loan up to the total cost of your education.  The big cache is that you must have a US Citizen or permanent resident co-sign the loan for you.

This co-signer must have lived in the United States or the past two years and have good credit.  This applies for Canadian students who wish to study in the United States as well.

It’s important to remember that with the soaring cost of tuition, it is important to calculate the benefit received with any student loan or education program you select.  You don’t want to find yourself over your head in debt after graduation with no prospects of getting a job.

Readers, what are your thoughts on studying abroad?  Value-added to education, or a waste of good money?

Can You Get an International Student Loan? is a post from: The College Investor. Please check out the site at http://thecollegeinvestor.com or follow him on Twitter @CollegeInvestin. Thanks!

Have you ever considered starting a small business?  Most people won’t consider starting a business because of lack of knowledge and fear of failure.  Unless you’re in the 40% of Gen Y Grads who want to start their own business.

What most people don’t realize is that is all depends on what business you choose and your dedication level. Once you get started you will realize how easy it is, not to mention the extra benefits that you will encounter.

Find Something You Like To Do

The first step would be to find something that you like to do and figure out a way that you can earn money from it. It can be a talent such as a craft, drawing or writing. It could be a passion, such as baking, cooking, decorating, etc. Once you figure out what direction you want to go, figure out a way to market your talent. Social networking is a great start. If you are a member of a social networking site, talk about what you do, post pictures of your work, encourage feedback. This is one free and convenient way to get the business rolling.

Build Clientele

The best way to get a business going is to build your clientele beforehand. If you have a craft that you’re selling, maybe give away a few of your finished products or sell them very cheap. If it is a food item, make samples and give them to friends and family. It may be a sacrifice in the beginning but by doing this, the client will feel a loyalty towards you and will most likely purchase more items in the future or better yet, spread the word to family and friends. There’s no better way to build a business than by word of mouth, because word travels fast.

Research, Research, Research

Make sure that you know what you’re doing when you decide to start your business. Research what to do, what not to do, where to go for a low-interest loan, etc. The more educated you are, the better the chance that the business will be long-lasting. Also, talk to other small business owners. You will probably get the best advice from a small business owner who already has the experience, whether their business is successful or has failed.

Keep Records of Everything for Tax Purposes

One of the best things about starting any business is the tax write-offs. It is important that you keep a record of everything that pertains to your business. This includes receipts of any purchases made, gas purchases, travel, etc. If you have a space designated in your home specifically for the business, you can deduct a portion of your mortgage or rent on your taxes. Whenever you use your vehicle, as long as you keep a mileage record, you can get .50 per mile back on your taxes. Traveling expenses can also be deducted as long as it is travel for business use, anything such as accommodations, meals, airfare, etc. This is definitely one of the perks of starting your own business.

Starting a small business is not for everyone. Some people just don’t have the drive or self-discipline to keep up with a business, while others are better suited working a 9-5. For the ones who are business-minded, and have a talent that they would like to share with others, a small business can be just the thing.  The important thing is to make sure that you are fully dedicated and willing to learn the tricks of the trade, and you are well on your way.

Readers, what other “to-dos” do you recommend when starting a small business?

4 To-Dos When Starting a Small Business is a post from: The College Investor. Please check out the site at http://thecollegeinvestor.com or follow him on Twitter @CollegeInvestin. Thanks!