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Why You Should Invest in Gold
The use of gold has been interwoven in cultures throughout history. The dynamics shaping the gold landscape have shifted irrespective of the other assets with gold lacking correlation with the trends of other assets. Having said that, the value of gold can never be underestimated.
David Zeiler, writing for the Morning Money, notes that a 2015 market crash is looming in the horizon. Christian Hills writing for the Money News states that the market is on the verge of another historic collapse. Whereas such premises are subject to debate, there is no doubt that there is a dire need to invest in precious metals such as gold.
Why Make a Gold Investment?
There are many reasons why you should invest in gold. To start with, Tony Doltorio, a financial analyst, argues that the weakness of the U.S. dollar has motivated investors to invest in gold. There is no doubt that the U.S. dollar is one of the most valuable currency reserves. However, it has fallen in value at one point or another. Unlike the currency, gold is not affected by trade deficits, an increase in money supply, and an inflated budget.
Cleme Chambers writing for The Forbes, notes that investing in gold is one of the most valuable tools of diversification. Gold is a risk management vehicle that helps the investor diversify portfolio. Gold is uncorrelated with most assets and moves independent of the economic indicators. Larry Swedroe of the Buckingham Asset Management says that gold is a reasonable portfolio diversifier due to its autonomy from the traditional asset classes and the fact that it is timeless. Modern Portfolio Theory says that investors should invest in a combination of assets in order to minimize the likelihood of substantial losses.
The principle of diversification is based on identifying assets that do not have a correlation to each other. For example, in the 1970s, the value of stocks was low while the value of gold was high. In the 1980s and the 1990s, the value of stocks was high while the value of gold was low. It can therefore be said that gold and stocks will rarely move in the same direction.
Third, Kimberly Amadeo, a US economy expert, argues that one can invest in gold as a safe haven. She gives the example of the 2008 financial crisis when many people invested in gold in order to navigate through the financial catastrophe that had befallen them. Such events immensely benefited those who had already invested in gold. This is because the value of gold and the other precious metals rose within a short period of time.
Gold is endowed with several characteristics that make it an outstanding option of investment. Cultural chronicles of financial transactions mention gold as a form of money at one point or another in history. In addition to that, it is an authoritative base for the gold standard which in turn sets the value for money. Unlike shares ownership which is manifested through a piece of paper, gold is a tangible investment which gives a sense of ownership to the investor.
Tony Daltrio argues that gold has the ability to retain its value in geopolitical uncertainty. It has often been termed as a crisis commodity. This is because people turn to gold when global tension is high. When the government confidence is at an all time low, gold is a rational investment strategy.
Mine supply is anticipated to decline in the coming three or four years. This is because of a dearth in exploration in the post Bre-x era (the scandal where it was discovered that Bre-x group of companies was sitting on a huge gold deposit), the natural and imminent exhaustion of gold mines, and the shift away from high grading.
Lastly, Fabrice Drouin Ristori, argues that gold has proven its ability to protect against inflation. Alan Greenspan, in his work Gold and Economic Freedom, states that in the absence of a gold standard, there is absolutely no way in which investors can protect their savings from confiscation. Joe Foster, a portfolio manager with the Van Eck International Gold Fund, says that massive government deficits are causing pressure on economies which lead to inflation. The more the money is pumped into such weakening economies, the less valuable a currency becomes. Consequently, investing in gold has been used as a hedge against deflation, inflation, or currency devaluation.
Investment in gold has never been simpler. There is a diversity of gold-backed and gold-related investment products. Gold investment vehicles include bars, coins, gold rounds, and accounts. Gold is a tangible, solid, and long-term store of value. The World Gold Council is instrumental in providing data and information to investors interested in gaining a comprehensive understanding of the gold investment environment. As the old adage goes, “gold has never been worth zero.” Overall, investing in gold is a highly valuable venture.