The London Bullion Market Association forecast gold prices to average 13% higher than current prices this year — $1,974 an ounce. This is just one enticing reason why you should invest in gold.
Throughout the ages, gold has long been revered as a sought-after, highly valuable, and in-demand commodity by consumers and investors alike. It’s a commodity with comparatively low volatility that can provide a financial safe haven in times of crisis.
Still not convinced? Check out these 10 practical reasons why you should consider investing in gold.
1. Diversifying Your Portfolio
One of the most important investing tips is to diversify your portfolio with investments that aren’t closely correlated to one another. So, why buy gold? Because historically it has had a negative correlation to stocks.
Throughout history, gold has reduced losses during times of economic instability. By adding gold to your portfolio, you improve risk-adjusted returns. This makes it one of the best portfolio diversifiers.
2. A History of Holding Value
Not only has gold held onto its value throughout history, but the value has actually increased. This has remained true since its discovery thousands of years ago up until today.
It remains a highly valued commodity that remains valuable during economic distress. If you invest in gold, you’ll be preserving your wealth and even making it available for the next generation.
3. Excellent Hedge Against Inflation
Inflation is actually good for the value of gold. The same can’t be said for most other commodities, and especially currencies. Throughout the ages, when the cost of living has increased, so too has the price of gold.
So if you invest in gold, you can secure financial stability even when stock markets take a dive in high-inflation years.
4. Ever-Increasing Demand
The demand for gold is growing as we see an increase in emerging market economies. This is especially true in countries such as India and China, where the growing middle class has an appetite for gold jewelry and other products and the material is intrinsically linked with culture.
It’s not only the consumer demand which is growing but investment demand too. So, the best time to invest in gold is right now, as the prices and demand are expected to continue rising.
5. Global Supply is Shrinking
Alongside the steady demand for gold is the global shrinking of supply. Gold is a finite resource and is relatively scarce. This is one of the reasons it holds onto its value so well.
Gold mining output has fallen drastically in the last decade or so, and it can take up to ten years to bring new mines into production. As the supply reduces, the value and price increase, making it an excellent investment commodity.
6. Safe in Times of Political Instability
We’ve discussed how gold holds its value in times of recessions, economic downturns, and high-inflation periods. But its security as an investment goes even beyond that.
Gold also holds its values during times of geopolitical instability and unrest. For this reason, it is referred to as the ‘crisis commodity’, as it provides a safe haven in times of tension and uncertainty. Many people begin buying gold when confidence in government takes a knock.
7. The US Dollar is Weak
Yes, the US dollar is one of the most important reserve currencies in the world. But there have been times when the value of the dollar falls against other currencies, such as between 1998 and 2008.
When this happens, investors flock to buying gold which leads to a massive boom in the price and value of gold. Gold is priced in dollars, so when the dollar value drops, the value of gold increases. Gold outperforms most major currencies, but especially the dollar.
8. Lower Volatility Compared to Other Commodities
Commodities as a whole are very volatile as there are plenty of unpredictable and uncontrollable factors that influence changes in supply and demand. While this is part and parcel of commodity investment, choosing the least volatile commodities is the smartest thing to do.
One of the top benefits of gold is that it has much lower volatility compared to other commodities. While it is vulnerable to short-term changes, over the long term it has shown to be among the most stable commodity investments.
It remains constant in value, is an excellent hedge against inflation, and it isn’t vulnerable to political instability. This makes it a relatively safe and profitable investment.
9. Global Government Debt at All-Time High
Total global government debt is higher than it’s ever been before. In fact, $120 trillion has been added since 2008 — try to wrap your head around that! This government deficit may lead to another financial crisis in the future.
Preparing for the possibility of financial instability by buying gold will provide you with a certain safe haven.
10. Central Banks Adding to Their Bullion Reserves
For the last decade or so, central banks have been adding to their bullion reserves in order to diversify. If central banks are recognizing the value in storing gold, then it’s a good sign that investors should be doing the same.
Invest in Gold, Invest in Stability
There’s one overarching message that is prevalent within each of these benefits: gold is stable. Or as stable as you can expect a high-value, high-demand commodity to be. If you invest in gold, you’ll have some financial security in future economic downturns, weakening of the dollar, or instability.
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