Throughout history, gold has been used both as a currency and a symbol of wealth and power.
This notion has not changed even in this modern era where paper currency is the money of choice. Gold is still of high value and tends to perform well in times of economic devastation and depression.
It’s common to see a steep price hike in gold whenever political tensions exist between powerful countries or when the global equity markets are turbulent.
You can invest in gold by buying:
- Gold Coins or Bullions
- Stocks in Gold Mining Companies
- Gold-Focussed ETFs
- Gold Mutual Funds
- Gold Futures
However, like every asset, gold is not without its downfalls.
If you’re considering adding precious metal to your portfolio, the following points will help you make an informed choice.
Great Hedge Against US/CAD Dollar in A Volatile Market
According to historical analysis, gold is renowned because it performs well in a volatile market.
Gold prices often appreciate growing inflation rates and a depreciating dollar.
Despite the US Dollar is one of the world’s most important reserve currencies, when its value falls against other currencies, this often prompts investors to position their investments in a hard asset known to maintain its value.
The inverse relationship that gold and the dollar have makes the precious metal be viewed as a hedge against it and other FIAT currencies.
The reason gold benefits from a depreciating dollar is because gold is priced in USD globally.
Move Opposite to The Markets
Since the stock markets began, gold has always held a reputation to correlate to stocks negatively.
Unlike investments susceptible to inflation, gold is inflation-proof. Inflation is the rate at which money loses its value over the years. Gold tends to either appreciate or retain the same value.
Gold is a scarce asset that acts as an insurance policy during adverse economic events. You’ll be able to lessen your risk by a big margin by having some savings in gold.
It’s the reason why it has been recorded that more investors are turning to gold for financial protection during this COVID-19 pandemic.
Not A Great Way to Grow Your Money, but Rather to Protect It
While many investors trust gold for its wealth preservation qualities, the asset does not provide consistent returns.
Unlike bonds that produce interest payments and stocks that pay investors dividends, gold doesn’t have any output. Gold derives 100 percent of its returns from price movements, which is a serious structural shortcoming relative to other asset classes.
However, investing in gold will safeguard your money for the future.
Gold is known and valued everywhere; a gold ring or trinket would maintain the same value in Canada as it would in the UK. This is due to its universality.
This means that if you invest in gold, there’s financial security and certainty for your precious metal whether you remain in your country or you move elsewhere.
While it’s not a great way to grow your money, the benefits of investing in gold are enthralling. Gold has more often than not increased in value over time, doesn’t require much maintenance, and boasts high liquidity in the commodity markets.
Investing in gold, whether it means buying the physical metal or gold-related securities, is not a decision to enter lightly. A financial advisor will advise on the percentage of your portfolio you should dedicate to this asset class.
If you choose to purchase physical gold, ensure you’re buying from a reputable dealer and have a safe place to keep it.
A Good Time to Invest in Gold?
Uncertainty following the COVID-19 market crash resulted in gold entering a bull market.
The current state of the economy shows strong buy signals.
If financial uncertainty continues, most likely propelled by the Russian-Ukraine war, we could see gold hit new highs in the coming months.