Gold continues to be a popular investment and has been for decades. Known for its value and history, many people around the world want to hold gold for a variety of reasons. It is a unique asset that is highly liquid yet scarce, and it is both a luxury good and an investment. Gold trading has also evolved from physical to virtual, but all forms of gold are equally attractive for investment. Here are some reasons why you should consider a gold investment.
Retained its Value
Because gold is corrosion-resistant, the precious metal is often inherited to preserve wealth from one generation to the next. Unlike paper money, coins, or other assets, gold has historically held its value. In the early 1970s, an ounce of gold was equivalent to $35. For both the ounce of gold and the $35, you could buy a brand new suit. Today, the same ounce of gold can still buy you the suit, but not the $35, because the value of gold has increased while the value of the dollar has decreased due to inflation.
Hedging Against Inflation
The price of gold tends to rise along with the cost of living, making it an excellent hedge against inflation. Over time, fiat currencies like the U.S. dollar tend to lose value against gold. Its rates have historically been virtually unaffected by inflation, and therefore reduce your loss when currency rates decline in the world market. Gold benefits from falling fiat currencies because investors who want to buy gold must sell their dollars to make that transaction, which ultimately drives the dollar down as global investors seek to divest from that currency. A weakening dollar also makes gold cheaper for investors holding other currencies, leading to an increase in demand.
A Commodity in the Face of Geopolitical Uncertainty
Gold prices have also held steadfast in light of geopolitical uncertainty. Often touted as a "crisis commodity," the price of gold often rises when confidence in governments is low. Similarly, when stocks plunged as the economy was first hit by the Covid-19 pandemic, the value of gold increased drastically, causing throngs of people to sell their gold.
Emerging market economies have boosted the demand for gold. In countries like China and India, gold is often intertwined with culture and tradition, making them the two largest consumers of gold in the world. Demand has also increased among investors, as the commodity is seen as an asset class in which to invest.
Gold has proven over time that it has a negative correlation to stocks and other assets. When the price of other assets goes down, the price of gold goes up or maintains the value of the portfolio. To reduce overall volatility and risk, investors tend to combine gold with stocks and bonds in a portfolio for diversification.
Though it tends to be erratic in the short term, gold prices have always sustained their value over the long term. The way its price rises in response to events that cause the value of other assets to decline is worth considering. As a hedge against the erosion of major currencies, gold should be an important part of a diversified investment portfolio. If you want to diversify your portfolio and buy gold, AGR Gold offers quick and easy service to meet your needs.