Why Gold? A Twenty-four Carat Question…
There are many advantages to owning gold. Adding precious metals to your portfolio can reduce your overall portfolio volatility, create a hedge against inflation, and insulate your assets during economic uncertainty – all while adding a tremendous opportunity for overall gains and upside appreciation. Even a modest amount of gold within a balanced retirement investment portfolio can significantly reduce risk and help protect a portfolio during stock market corrections and other economic turmoil. Below are seven reasons to own the “King of Investments”:
A Timeless Store of Wealth
Gold has maintained its value throughout the ages. People see it as a way to preserve their wealth and pass it on from one generation to the next. Not all investors love the yellow metal. It does not pay interest and requires secure storage. But many experts agree that it will always have value. While the price may fluctuate, history has demonstrated – for thousands of years – it will never become worthless.
Hedge against inflation and a declining U.S. dollar
Inflation lowers the value of currency and consumer purchasing power. The five years in which U.S. inflation was at its highest – 1946, the year after World War II and during the late 1970s – the Dow Jones Industrial Average saw a real return of minus 12 percent while gold gained 130 percent.
Gold is spot priced, bought and sold in U.S. dollars. Any decline in the value of the dollar forces the price of gold to rise. The U.S. dollar is the primary medium for international transactions and the principal store of value for savings. It is the world’s reserve currency – the currency in which commodities and equities are denominated, and the currency primarily held in reserve by the world’s central banks.
A Safe-haven During Financial, Geopolitical and Economic Uncertainty
Gold retains its value not only in times of financial uncertainty, but in times of geopolitical uncertainty. It is often called the “crisis commodity”. As such, it is considered a safe investment for financial protection. You spend money for car or homeowner’s insurance and hope you’ll never need it, but it’s there in case of misfortune. Although the price of may fluctuate, it’s often a valuable resource during economic downturns. Domestic and global upheavals or tensions cause investors to seek a safe haven to protect their wealth.
Supply Constraints Amid Increasing Global Demand
Supply from mines has fallen “dramatically” this year (2017), bolstering prices of the safe-haven asset in the face of geopolitical tensions, ANZ said in a note on Thursday. “Growth in mine output is at its lowest point since the financial crisis, with risks only getting greater,” wrote ANZ’s senior commodity strategist, Daniel Hynes.
As a general economic rule, a reduction in supply results in a corresponding increase in price. Currently, miners cannot increase their production and it can take from five to 10 years to bring a new mine into production.
India is the largest gold-consuming nation in the world. China has the fastest-growing economy in modern history. Both India and China have liberalized laws relating to the import and sale of gold in ways that will facilitate purchases on an unprecedented scale.
The key to effective diversification is finding investments that are not closely correlated to one another. Gold has historically had a negative correlation to stocks and other financial instruments. Recent history supports this claim…
- 1970s – Great for gold, terrible for stocks.
- 1980s – Great for stocks, terrible for gold.
- 1990s – Great for stocks, terrible for gold.
- 2000s – Flat for stocks, flat for gold.
- 2008 – Stocks drop substantially, consumers migrate to gold.
Properly diversified investors combine gold with stocks and bonds in a portfolio to reduce the overall volatility and risk.
Tangible Asset – Not Digital Code in a Computer
Real gold can withstand fire, floods, or even time. You can keep it safe in your home and hold it in your hand – something you can’t do with most any other investment. Another advantage is that it can’t be hacked or erased. Unlike brokerage accounts, bank accounts, and payment services like credit cards – gold bullion is out of reach from hackers and identity thieves.
In today’s world, it’s probably a good idea to have some of your wealth outside of digital form. If the internet isn’t available or your online world comes crashing down, the coins or bullion you possess aren’t affected. In fact, in that scenario, they could be a lifesaver.
Privacy and Confidentiality
How many assets can offer privacy in a computerized, digital world? If you want privacy, physical gold is one of the few assets that can provide it – one of very few investments that can be anonymous. If you choose, no one has to know you own it or where you store it. Virtually no other investment provides this benefit.