When is Investing in Gold a Good Idea?

Gold has a long glittering history of as a highly sought-after material with value in every trade, culture and currency. But before you actually begin investing in bouillon, coins or bars, it is a good idea to start with some information about this precious metal and how it can be used in your investment portfolio.

So, let’s begin with the most important question of all “Why do investors buy gold?”

 

Inflation hedging

Gold is a great way to compile vast resources into a compact cache of treasure with a fairly stable value. With a wide range of threats to all other types of assets in the unpredictable markets, gold holds its value while the rest of the world may be in liquidation. A smart investor will take their hard-earned cash and buy gold to protect their wealth against the very real threat of inflation. The value of gold rises with the cost of living, in other words as currency loses value because of inflation, gold increases in value. An investor with millions of dollars in paper money would lose considerable value in such an event, unless he transfers this money to its equivalent in gold. Protecting a treasure in this way is called “hedging.”

 

Relative performance

Of course, the price of gold is still subject to fluctuations just like any other asset on the market. But in the long run, the value of gold is far steadier than any other type of asset. For example, stocks and bonds which are bought high and sold low for profits, gold brings it value with a slower price appreciation. There are therefore many important points to consider when opting for gold as part of your investment portfolio. For example, gold must be insured and stored with the highest security.

 

Diversification

The final reason that gold makes an important part of your investment portfolio centers around the old adage about “keeping all your eggs in one basket.” Because gold is not affected by the same market fluctuations that will affect stocks or bonds, it can be used as a way to keep a portion of your wealth cordoned off from threats that may affect the rest of your wealth. This is called “diversifying.”

 

Final Notes on Gold Investing

But this tale comes with a word of caution. Just because gold has always had a strong value doesn’t mean that the value of gold will not plummet all of a sudden. This typically happens when all the really big gold holders begin selling their gold. The flooded market means that gold is widely available and the price drops. Any investment portfolios that are entirely composed of gold will hit the skids in a hurry.

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