Gold is perfect for anyone who’s concerned about calamities like inflation or wishes to diversify their investment risk. You can invest in gold via EFTs (exchange-traded funds), purchasing stocks in gold miners or associated companies, or buying physical products like bullion and coins.
People add gold holdings to their investment portfolios for various purposes. Discussed below are seven reasons to invest in gold.
1. It’s a safe haven
A safe haven is an investment expected to rise or maintain its value during market turbulence. Usually, when the market falls or rises, it’s for a short time. Nevertheless, in times like economic recessions, when market downturns are prolonged, most investments’ market value can fall drastically. Gold helps limit your exposure to losses in times of economic downturns. It comes in handy in case of market volatility. Gold has been seen as a store of value for years.
Unlike money, gold in its physical form can’t be printed, and its worth isn’t influenced by government interest rate decisions. Check out an article from the Oxford Gold Group to learn more about gold performance in times of economic instability.
Historically, gold has maintained its worth, serving as insurance against unfavorable economic events. In addition, gold value rises when there’s an inflation threat, helping safeguard your wealth. Incorporating gold into your portfolio lowers your risk exposure.
2. Gold is a liquid asset
Gold’s liquidity is among the primary reasons to consider putting your money in it. This means you can quickly convert it into cash whenever the need arises. Gold is considered highly liquid due to various reasons, including:
- It’s generally accepted ─ Gold has been a generally accepted currency for many years. As an asset, it’s investable and used in electronics, jewelry, and other products. The fact that gold is valuable in each country makes it easier to purchase and sell internationally
- It’s simple to buy and sell ─ Since gold is universally accepted, it’s easy to sell and buy. You can purchase it in various ways, including futures, IRAs, and EFTs
- Its rarity ─ Gold is relatively scarce, which keeps its prices steady as opposed to other assets such as cash, which highly depends on market forces and can be printed at any time. Its rarity also implies that it’s constantly in demand, making it easier to convert into cash whenever you want
- It’s tangible ─ Gold’s tangibility nature means it’s an asset you can hold. This means you sell it fast for cash because most investors are ready to buy things they can hold
3. It’s an inflation shield
Gold investing is a smart option for adding stability to your diverse portfolio, particularly when looking for a shield against inflation after the purchasing power for products and services drops. This is because it holds its value for a longer time than most other asset types. Precious metals like gold can withstand currency devaluations and cash flow problems better than any other asset class, which comes in handy for those worried about the existing market turmoil.
Gold has a negative correlation between fixed-income schemes like stock and bond markets, meaning when these schemes fall, gold usually rises as they no longer lure investors, making it an excellent time to buy gold. Also, gold’s inherent worth in most cultures and limited supply make its performance rise during inflation.
4. To diversify your portfolio
While not every investment pans out as anticipated, most people opt for gold as a portfolio diversification option. By diversifying your portfolio, you can significantly minimize risk and, at times, raise long-term gains. Reducing the threat of significant losses helps prevent the temptation of selling assets because their prices are falling. This ensures you remain invested longer while giving your portfolio time to grow long-term. Investing in gold for diversification purposes allows you to select from multiple options, such as:
- EFTs ─ They allow you to access gold without acquiring it physically. Rather, investing in EFTs is just like you would stocks
- Precious metal companies ─ Buying stocks in precious metal companies involved in gold is another way to be exposed to gold, although not directly
- Gold bullion ─ If you prefer possessing physical gold, you can buy gold coins or bars
- Gold IRAs ─ They help diversify your retirement account, helping mitigate the effects of currency changes, stock market volatility, and inflation. In addition, gold IRAs bring limited security and storage concerns, making them perfect for portfolio diversification
5. Gold safeguards your portfolio from losses
During harsh economic times, most investors opt for gold due to its trustworthy investment reputation for standing the test of time and proving itself a safe haven. Gold safeguards your portfolio from stock market losses by:
- Balancing out risk ─ If you’ve invested in a volatile asset like stocks, adding a more conservative asset such as gold diversifies your portfolio by counterbalancing that risk
- Doing well in hard economic times ─ Gold weathers most economic storms, such as recession and inflation. This makes it a powerful safeguard against reduced purchasing power and financial instability while providing a cash reserve during tough times
- Providing steady plans ─ Gold may waiver in the short term. However, it holds value better than most assets, including fiat currency and stocks
6. For protection during geopolitical uncertainty
Geopolitical tension significantly impacts gold’s performance and prices. Investors’ risk averseness rises. They fear conflicts might negatively affect financial markets around the globe, pushing them to seek refuge in gold and other assets that are considered safe investments. Wars/ conflicts between countries may result in currency depreciation or devaluation. Gold investing can hedge against currency fluctuations because gold isn’t tied to a particular currency and maintains its intrinsic worth.
Gold’s highly liquid nature means you can sell and buy it easily, even during geopolitical uncertainties. This makes it attractive to those who wish to move their money fast in volatile markets. Geopolitics can cause supply chain disruptions and lead to economic uncertainty, increasing the risk of inflation. Gold shields you from inflation, making it suitable if you’re worried about rising raw material and commodity prices.
7. Gold’s supply is limited
Gold production is capped, meaning there’s only a specific amount available globally, making it increasingly costly and hard to access. As such, its supply is limited. When there’s limited supply and steady or rising demand, gold value isn’t at risk of falling.
Gold investing has multiple rewards. Learn the reasons to invest in gold before deciding if it’s worth trying.