Gold is one the most valuable metals in the world and it has been used by dozens of generations to store value, perform transactions and take away power from governments. At the same time, in recent times, it became a tradeable precious metal that can also be used as a hedge against inflation and to speculate with its price fluctuations.
In this guide, we will be sharing with you some of the most important reasons why you should own gold. You will find that gold has been a very valuable metal over time and it has helped generations to be protected against politicians, rulers and greedy kings.
Disclaimer: the information provided in this post should only be considered for educational purposes. This is not investment advice. You should always contact a professional advisor before investing. Never invest more than what you are able to lose.
Protects Against Inflation
Gold is one of the most used assets for investors to be protected against inflation. The main reason behind that is related to how gold is mined and how it increases the total gold in circulation. While fiat currencies such as those issued in developing economies have high inflation rates, gold has a very stable increase in the supply that does not affect prices over time.
At the same time, if mining companies eventually decide to extract more gold, the impact this decision will have in the market would also have a limited impact due to the difficulty related to gold mining activities. Moreover, gold’s supply is way larger than any increase in the new supply of gold being introduced to the market.
Thus, its low inflation rates and its history as a store of value make gold a great way to hedge against inflation. Currencies in some countries such as Argentina or Venezuela have no value at all and they are just not demanded by their populations. Gold solves this and helps people in these countries have an alternative to their printed papers.
Store of Value
This is highly related to the previous section. Indeed, gold is considered to be a store of value due to the difficulty to increase its supply. At the same time, it is considered to be a very valuable metal that has been used over the last centuries and millennia for generations of individuals.
Investors and gold holders wanted to be sure that their effort and work could be stored for long periods of time knowing that even future generations could enjoy it. At the same time, gold allowed for generations of investors to be able to plan for long periods of time. Thus, gold became a very valuable metal and a store of value.
Diversification of Investments
Gold can also be used by investors to diversify their portfolios. Portfolio diversification is a very important thing to do. Users will realize that having a portfolio properly diversified would be key to their success over time.
In general, gold has a negative correlation with stocks and other investments. Although this rule does not apply 100% of the times, it is good to know that our portfolio will be performing somehow better even during periods of uncertainty in the stock market.
At the same time, it will certainly be very useful for investors to use a combination of gold, bonds and stocks. This would reduce volatility, help traders and investors have a more balanced portfolio and avoid higher exposure to risk.
Protection Against Financial and Geopolitical Turmoil
Gold can also be used by investors to be protected against financial and geopolitical turmoil. Nowadays, banks store gold because they know it has value and it has been working as a store of value for thousands of years.
When crisis grow and geopolitical tensions expand, countries and investors tend to store and buy gold. This provides a hedge against any issue that could arise and help their portfolios be balanced during periods of crisis.
Gold is considered to be a safe investment during crises that tend to happen every some years. Thus, having a balanced portfolio with gold would help investors be protected against financial and geopolitical turmoil.
Conclusion
Gold has been used in the last thousands of years as a store of value, a hedge against inflation and protection against crises and geopolitical turmoil. Investors can also start adding gold to their portfolios in order to better diversify their investments and remain profitable even during bad years for stocks.
Gold is certainly going to be a very useful precious metal to add to a portfolio or simply to hold due to international uncertainty in the markets.
