1. Gold protects against market volatility 2. Gold hedges against inflation 3. Gold is a great portfolio diversifier 4. The U.S. dollar is getting weaker 5. Gold is a scarce resource in high demand 6. Gold has a history of strong performance 7. Gold is a safe-haven asset Be Realistic About Gold’s Role In Your Portfolio
Gold is one of the most valuable commodities on the market and has retained this status for many years. Investors can own gold as a financial asset, a luxury piece of jewelry, or hold it as a store of wealth.
This precious metal is seen by investors as one of the safest investments on the market since it has historically been seen as a safe-haven asset. It protects investments and preserves the value of cash in times of stock market volatility, economic turmoil, or geopolitical issues.
Here are some of the top reasons you should consider investing in gold.
Physical gold typically comes in the form of coins, bars, or jewelry. However, jewelry is usually not a high enough purity to be considered gold bullion. 1. Gold protects against market volatility
Long-term investors or day traders have to face short-term market risks like volatility. Yet they also must consider long-term economic risks. These include inflation, stagflation, geopolitical issues, and slowing economic growth, all of which impact market volatility.
Having an asset like gold in an investment portfolio can help ease these risks. Gold serves as downside protection in a scenario where other assets may suffer from volatility under market pressure. As investors see market tensions increase, they tend to pile into gold and send the precious metal’s price higher. 2. Gold hedges against inflation
A major economic risk people are facing on a global scale is inflation. Inflation is defined as the gradual increase in prices of goods and services.
In the latest consumer price index reading, inflation increased 7.9% over a 12 month period in February. This is the highest reading we’ve seen in more than 40 years and there are little signs that inflation will be slowing down.
What does this mean for your money? As inflation increases, the value of your money decreases over time. This means it will require more dollars to buy the same amount of goods and services in the future.
Gold has historically been a natural hedge against inflation. By investing in gold, you preserve the value of your money over time because the price of gold and inflation move in the same direction. The price of gold increases when inflation increases. 3. Gold is a great portfolio diversifier
Gold is a suitable portfolio diversifier because it is uncorrelated to conventional assets like stocks and bonds. The prices of stocks, bonds, and exchange-traded funds (ETFs) are more sensitive to market volatility. When traditional assets experience market losses, gold tends to experience less losses compared to equities.
Depending on whether the economy is performing well or poorly, certain market sectors will be favored over others. Stocks can fluctuate as a result. However, the benefit of having gold as part of a diversified portfolio means you are holding an asset that offers stable performance whether the economy is in a recession or is expanding.
Investors can count on gold to act as a portfolio stabilizer because its value is generally not as susceptible to large price swings. 4. The U.S. dollar is getting weaker
The U.S. dollar is considered the world’s reserve currency, but there are several factors that have contributed to a weakening U.S. dollar. The central bank of the U.S., the Federal Reserve, controls monetary policy. The Fed has set exceptionally low interest rates, which encourages people to borrow money.
This easy availability of money eventually leads to a depreciating dollar. Furthermore, since the U.S. dollar is not backed by gold, it can be printed endlessly. As there is more money being printed, the dollar is less scarce and as a result less valuable.
When this happens investors often flock to gold because it is a tangible asset (i.e. “hard money”). This gives gold intrinsic value because of properties as its scarcity, durability, and high demand. 5. Gold is a scarce resource in high demand
Gold is in high demand as an investment. The size of gold’s market capitalization is vast valued at more than $12 trillion. This major asset class has high liquidity, making it one of the most traded assets in the world.
The reason why gold is valuable is because of supply and demand. Gold is a scarce precious metal which means its supply […]
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