The Economic Case for Buying Gold Now
Gold has been revered throughout history as a store of value and wealth. Gold is more than just a precious metal and silver is more valuable as an investment set as much as it is an industrial metal. In 2020 just over 47% of the gold sold globally was to private investors.
Why are more people attracted to gold?
It is an excellent hedge against risky financial conditions. Investors include it in their portfolios because it can protect their wealth and preserve capital for years. Gold offers a number of important benefits.
Effective portfolio diversifier
If you have a portfolio with shares and bonds gold but you need other assets to hedge against losses in stocks and bond market. A lot of people learnt the hard way when the housing bubble burst and created the worst global recession in 2008. People realised that some investment assets were not safe and property wasn’t such a strong solid asset to put all your money. Since then, there has been a growing interest in precious metals like gold and silver.
Gold provides protection against inflation
The gold price is given in U.S dollar therefore if the U.S dollar happens to fall because of inflation it becomes expensive to buy gold. Over the last decade, countries have been increasing the gold in their central banks amid speculation that there are countries who want to decouple their own countries from the U.S Dollar, thereby ending the U.S Dollar’s hegemony.
- Gold has always been valuable. This is something that is unlikely to change as this has the case for centuries. You can realise good returns with gold than with a lot of other key assets including government bonds. The annual return for gold has averaged 11.2% from 2001 to 2020.
- In addition to that, gold has a low correlation with other investment assets allowing it to outperform most investment assets during recessionary times. The gold price actually rises when the economy is struggling. It did so during the 2008 recession whilst other assets took serious knocks.
- With the recent economic troubles, gold has held its own with the price pushing past $2,000 an ounce.
- The rising amount of paper money flooding the market from new print-runs, the world has entered a period of quantitative easing and consequently higher inflation.
- The current economic and political chaos can produce a perfect storm for the yellow metal.
- Historically, the gold price has performed well during inflationary periods. It has been known to deliver a return of 15.4% annually.
- The price of gold is also affected by interest rates. If central bank interest rates are low, they boost the value of gold. During such times, gold will outperform most assets in the face of falling interest rates.
- Gold retains its value economically, moreover gold does not rust. So, it maintains its look if it is stored safely and securely and handled with care. During volatile times, gold will be less vulnerable than other metals and commodities.
The Case for gold is mainly built on its intrinsic value and its ability to protect investments when markets take a downward turn.