Gold continues to be a popular investment for ages. It has been respected all over the world for its value and rich history. People have wanted to hold gold for various reasons. With various innovations, gold trading has evolved from physical gold to virtual trading. However, all forms of gold are equally attractive for investments.
Reasons that make gold a good investment
Here’s a list of reasons why gold still shines as an investment:
- Gold has maintained its value Throughout the years, gold has held on to its value and people look at it as a way to pass on and preserve wealth from one generation to another.
- Holds a good price when the reserve currency loses its value Gold prices rise when the US dollars or the reserve currency falls. Gold has been termed as the safe haven for this reason. People start flocking to the gold’s security at the time of fall in the value of reserve currency.
- Hedge against inflation Gold has been an excellent hedge against inflation as the prices rise when the cost of living increases.
- Gold’s purchasing power soars during deflation Prices decrease and business activity slows down at times of deflation and the economy gets burdened with excessive debt. The relative purchasing power of the gold soars while other prices drop.
- Crisis commodity at times of geopolitical uncertainty When the world tension rises, people turn to relative safety. When the confidence in governments is low, the gold prices are often seen to be rising. The European Union crisis gave way to the major gold price movements this year.
- There is a supply constraint Most of the gold supply since the 1990 has come from the sale of gold bullion from the central bank’s vaults. But there has been decline in the supply from the central bank and the gold mining output has been declining as well. It will take another 5-10 years to bring a new mine into production. Reduction in the supply of gold increases the prices of gold.
- Increase in demand Increased wealth of the emerging economies boosted the demand for gold. In most countries, it is intertwined into its culture. Indians buy a lot of gold especially during the wedding season and China buys gold bars as they are a traditional form of saving. The gold demand has been growing among the investors as well.
- Used for portfolio diversification Key to diversification is to invest in products that are not closely correlated to each other. Gold happens to have a negative correlation with stock and other financial instruments. Hence, it is a perfect choice to diversify your portfolio and to ensure that you are reducing the overall volatility and risk.
The decline of paper investment leads to increase in the price of gold and hence gold is the perfect investment to make if you wish to diversify your portfolio. In the short term, the gold prices can be volatile, but it has maintained its value over the long term. If you are planning on investing in gold, make sure it is for a long term. It will serve as a hedge against inflation and the erosion of major currencies. Investing in gold is worth considering.
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