Gold coins have dated back to 650 B.C., with the first-ever pure gold coins seen during the times of King Croesus of Lydia. Gold has been used as a medium of exchange for centuries, and today, even novice investors embark on their journey to financial freedom by purchasing gold bullion before dipping their toes into more risky assets.
Why You Should Consider Investing in Gold
People have continued to hold gold throughout time for several reasons. Whether it is tradition or an uncertain economy, people resort to investing in gold.
Let’s look at the seven reasons why gold is a great form of investment.
Gold is Stable
When you’re looking to invest money, you want to park it in a stable investment asset. Over the years, the US dollar has lost a lot of value, and so have many other investment assets. However, gold is one of the few commodities that has maintained its value throughout time due to its rarity.
Gold is also used in many different products, such as wedding rings, medals, trophies, and electronics, among many other applications. The demand for gold is increasing daily, which keeps pushing its price up, making it one of the most stable investment assets to park your money.
For a long time, people believed that the United States dollar is mighty and that as long as the USA keeps paying its debt, its value won’t decrease. Well, that is true to some extent.
Since the United States has tens of trillions of dollars in debt, it has forced the currency to depreciate. When a currency loses its value, the country’s residents and investors store their money in physical assets that are stable, such as gold.
Between 1998 and 2008, gold touched an all-time high of $1,000 an ounce, but that doubled between 2008 and 2012, touching the $2,000 mark.
During the 2008 housing crash, investors lost a lot of money, and the economy slowed down. To protect their savings, residents, and investors purchased a lot of gold, enough to double its price in the four years that followed.
Hedging against Inflation
When the cost of living is on the rise, the price of gold also follows.
The main reason behind the rise in gold during inflation is that a fiat currency loses its value during inflation, but since gold is a commodity, its price increases in tough economic times.
Also, people view gold as a great store of value, which is why many invest their savings in gold to protect them from any economic turmoil.
Gold not only retains its value in uncertain economic times but also during geopolitical uncertainty. This is why gold is also referred to as a “crisis commodity”.
When tensions around the world or several countries rise, people realize that the currency might plummet, which is why they resort to purchasing gold to secure their savings. People also know that during uncertain times, gold prices start to soar, as evident from the European Union crisis.
In countries where there is political turmoil or countries ruled by dictators, the super elites hoard their cash in other currencies and gold. Muammar el-Qaddafi had stored millions of dollars in United States dollars, Euros, and gold due to the severe uncertainty present in the country.
Mining gold is a challenging and long-term task as it can take between five to ten years to start production in a gold mine. This period affects the supply of gold throughout the world. As supply decreases, the price of gold increases and vice versa.
Over the years, many emerging economies experienced a surge in wealth, which in turn increased the demand for gold. In some countries, gold is part of the culture, which forces demand upwards.
For example, in China, people see gold as a traditional and great way to save money. India is one of the largest consumers of gold. In their tradition, a family collects gold throughout their lifetime and passes it down to their offspring upon weddings.
With more than 1.38 billion people, most weddings occur in October, which is why the world witnesses an increase in global gold demand.
The demand for gold has also risen among investors, as evident from the SPDR Gold Trust, which is said to be one of the largest ETFs in the country.
Over the past few decades, people have been seen diversifying their investment portfolios by purchasing gold. This is because investors prefer investing in multiple assets that do not correlate.
As the saying goes, don’t put all your eggs in one basket. Diversifying into gold can help you rebound from harsh economic conditions as gold has a negative correlation to stocks. For example, if you had invested in stocks and gold in 2008, you would not have faced such a huge loss due to the rising gold prices. But if you had invested all of your money in gold, you wouldn’t be left with much.