Gold has long been viewed as a stable investment. Many people invest in gold to protect their wealth and hedge their bets during hard economic times. Gold has outstanding benefits that fit a variety of financial strategies.
Here are 10 of the top reasons why people buy gold, its historical value, and its role in hedging against inflation.
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Investing in gold has advantages that attract investors worldwide. Below are 10 reasons people buy gold. Each reason highlights why gold is an in-demand asset that may be worth adding to your portfolio.
Paper currency loses its value when inflation is high. Gold, however, tends to retain or even increase in value when inflation is high. In the 1970s, gold prices soared as people turned to gold to protect their buying power during an impending economic crisis. Investors learned to balance their portfolios and mitigate the impact of inflation over a long period of time by adding gold.
Gold tends to move independently of financial markets, which means it can be used to balance risk. Stock and bonds experienced a serious downturn during the 2008 financial crisis, but gold held its value.
Buying and holding gold in your portfolio reduces your exposure to market volatility over a long period of time and provides stability when traditional assets fluctuate.
Gold prices tend to surge during large-scale political uncertainty. During Brexit and the COVID-19 pandemic, for example, investors turned to tangible assets, and gold was attractive because of its intrinsic value.
It’s particularly attractive to investors during geopolitical events that could potentially devalue paper currencies and disrupt global financial markets.
Other assets fluctuate or lose value over time, but gold prices have consistently risen over the past two centuries. Ancient empires and modern economies have used gold as a form of currency, making it a recognized and accepted global symbol of wealth and stability with consistent demand and cultural importance.
Currency devaluation occurs when a currency loses its buying power. In Venezuela, hyperinflation caused the Venezuelan bolivar to lose nearly all its value. Many Venezuelans turned to gold as a store of value while the bolivar collapsed. Gold is a secure option for financial security when fiat and paper money fail.
Global demand for gold remains strong and is expected to increase across various industries. It’s used in the tech industry and electronics for its excellent conductivity and resistance to corrosion.
In India and China, it holds a cultural significance and drives the lucrative jewelry industry. Increased demand and limited supply will only further boost gold’s value over time.
Gold is a highly liquid asset that can be bought or sold globally. Other assets take time to convert into cash but gold is quickly exchanged for almost any currency anywhere in the world. It is universally recognized and a reliable source of funds.
Deflation is a decrease in the prices of goods and services. During deflation, your buying power increases, but the value of assets falls. Historically, gold’s value has been stable and has been appreciated over time.
For example, during the Great Depression in the 1930s, the price of gold was fixed and nationalized. You couldn’t own gold outright during this time, but you could invest in gold equities. Gold mining stocks shot up over 500%, while the Dow Jones toppled and lost 73% of its value.
The limited worldwide supply of gold adds to its lasting value. Money can be printed, but gold is finite and must be extracted at a controlled pace. Mining gold is also a resource-intensive task, which restricts how much one can yield in a given year.
Gold is a physical asset with intrinsic value, meaning it doesn’t depend on the solvency or performance of banks, governments, or financial institutions to maintain its worth.
This minimizes counterparty risk—the risk that another party won’t fulfill its financial obligations. Unlike stocks, bonds, or currencies, gold’s value isn’t tied to a promise or agreement, making it a secure choice for preserving wealth during uncertain times.
Counterparty risk can arise if you invest in gold through third parties, such as dealers, custodians of gold IRAs, or ETFs. In these cases, your investment’s security depends on the reliability of the entities managing or storing your gold. Holding physical gold outright eliminates this risk entirely.
Gold is a heavy thing to carry around especially if you have a lot of it! Working with a third party, such as a dealer, or investing in a gold ETF, subjects you to counterparty risk. This just means that the third-party person handling the gold can commit fraud, have their security breached, or something else of an unknown nature can happen. You can mitigate this by doing proper research to make sure you’re with a reputable company. If you do consider holding gold yourself, please be mindful that in your own custody something may happen, such as theft or fire.
Crystal Rau, CFP®
There are many options available to you if you are considering buying gold:
Research trusted gold dealers before making any purchases. Companies like American Hartford Gold, Anthem Gold Group, Priority Gold, and Preserve Gold are known for their competitive pricing, buyback programs, and great customer service.
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