Is investing in gold a good idea? This question might have crossed your mind if you are looking for a safe sanctuary to invest your money into. Gold is one of the earliest forms of currency recorded. People used to use gold to perform transactions, signifying the historical importance of gold. Even though we have shifted to paper money and other electric means of exchanges, gold is still one of the most valuable assets and its importance can be deciphered from the fact that several currencies have, until recently, been backed in gold.
We are well acquainted with the fact that currencies, including the US Dollar and Euro, are subjected to price fluctuations. Gold can help to hedge against inflationary fluctuations, as it has a negative relation with the price of the Dollar or Euro. This implies that, when the Dollar depreciates in value, the price of gold increases. This occurred from 1998-2008, when the US dollar depreciated in value due to trade deficits and high money supply. Through this period the price of gold tripled, hence demonstrating that investing in gold can protect against deflation.
High rates of global inflation decrease the purchasing power of money. When currencies devalue, the price of gold increases alongside the price of many other consumer goods. This means that the purchasing power of 1 ounce of gold remains the same. For example, in 1950, one ounce of gold was worth approximately $35. Clearly, it would be better to have held your savings in gold over the last 70 years than it would have been to hold it in cash. Instead of facing devaluation in its value, gold prices rise with the prices of everything else. This is one of the main reasons to invest in gold.
Gold also acts as an excellent store of value. Just exactly how is gold beneficial during times of deflation? As the purchasing power of money rises and the prices of commodities seem to drop drastically, the price of gold usually does not drop. This phenomenon is brought about by people who prioritize saving during these periods, thence making gold the safer bet and investing in gold and gold coins.
We also live in a world where cultures and trends play a crucial part in boosting demand for commodities. Many countries in Asia including India, Pakistan and China have a tradition of wearing gold jewellery, making the demand for gold immensely high. This increased spectrum of demand for gold can be an encouraging point for the investors, as a diversified demand for the yellow metal helps strengthen its value.
Finally, today a diversified portfolio is a must. A well-balanced portfolio includes securities from different sectors, bonds, stocks, precious metals, and even art. Gold stands in its own investment category, making it a perfect investment opportunity and insulating investments from stock market volatility. Stocks are more likely to face swings in volatility and this encourages investors to find a safer alternative such as gold.
The benefits of investing in gold depict a crystal clear explanation of why gold is a safe bet and can benefit investors.
