Precious metals and gems are popular worldwide. If you think that is the only reason they maintain their high prices, you are mistaken. Precious metals, especially gold, have been used as the store of value for millennia.
We don’t know the exact reason behind the likeness of gold. Whatever the reason, it seems that liking gold and using it as a store of value has been occurring for hundreds of years.
The other factors contributing towards the high prices of gold and silver, along with other precious metals, are their scarcity and their use in industrial processes.
Technological advancement has made our lives easier, but it has also made the financial system somewhat fragile. Every natural or political disaster affects our financial system. In this system, investors need something to cling to in difficult times. Thankfully, gold gives them an option to preserve their wealth
The mechanism of prices of precious metals has made the whole situation quite interesting. Modern investors see investing in gold as a way to store money that doesn’t ensure high returns. This is the reason that top investors like Warren Buffet dislike investing in gold. Gold prices increase slowly over time, and it can be costly to secure and store precious metals.
On the other hand, gold enthusiasts are of the view that gold ensures that their money doesn’t lose all of its value in bad economic times. During periods of uncertainty, the gold price surges and any loss suffered from the financial system is somewhat covered by a surge in gold prices.
We have discussed how investing in gold is quite a difficult decision for investors. Let us make it easier for you by providing some reasons to choose gold and silver as investment options;
- Investment is all about creating the best portfolio for you. A portfolio is the collection of your investments. The more diverse your portfolio is, the better your chances for financial growth and survival. If you put all your money into one investment, your growth is attached to that particular investment. To save you from any downfalls, you should invest in contrasting shares and products. Precious metals like gold and silver are considered a hedge against the financial system. If stocks plunge, the prices of gold and silver surge, but when the prices of stock are increasing, the prices of these metals remain on a normal trend rising slowly.
- The second reason for investing in gold and silver is that their demand is constantly increasing. The supply of these two metals isn’t abundant, and earth has a limited amount of gold and silver. The increasing demand with constant or diminishing supply put their prices on a long-term upward trend.
- Socio-political and geo-political uncertainty like the recent Covid-19 pandemic has proved the point once again that gold and silver can withstand a financial slowdown or even a recession. This quality of gold and silver makes these metals precious.
- Another good reason to invest in gold is to save you from the effects of inflation. Inflation happens when there is more money in the market than actual demand. The buying power of the individuals shrinks during inflation, but investing in gold saves you from that. The prices of gold also surge during inflationary periods because inflation causes uncertainty, and gold markets benefit from uncertainty.
- Contrary to inflation is deflation. Deflation is the phenomena when the prices of commodities and services fall in the market. Gold and silver can withstand that too because of the fact that the demand for gold almost never diminishes.
- The US Dollar and gold have had a really close relationship throughout the last century. When the Dollar falls, investors flock to the gold in order to save themselves.
The above-mentioned reasons make it obvious that you should have some of your investment in gold and silver. It doesn’t only protect your portfolio during hard times but also makes your portfolio more diverse.
