Gold is a very valuable asset that reacts strongly to higher inflation and global economic uncertainty. Gold isn’t like shares or bonds, you cannot earn dividends or interest. However, investing in Gold can be a worthwhile investment because its value can truly gain momentum at times, which provides an opportunity for profit. Moreover, Gold can be a great way to diversify your portfolio.
There are different ways you can take advantage of Gold. You can buy physical Gold bars or coins, for example. In that case, you will need to find a way to store it somewhere safe to protect it against theft. You can also trade Gold without having to own and protect Gold bars or coins.
Many brokers offer financial products based on Gold, so then investors can take advantage of the price fluctuation without having to deal with the real metal. Some brokers even offer the option to trade Gold via mobile, so then investors can potentially make a profit on Gold wherever they are, as long as they have an Internet connection.
Why do investors consider Gold one of the best precious metals to invest in?
Throughout history, Gold has always fascinated people, who owned Gold for different reasons. Nowadays, Gold has a special value and is mostly considered a hedge against inflation, and a safe haven during geopolitical uncertainty.
But why do investors use Gold to diversify their investments? How does owning Gold help them face different market situations? Let’s have a look at the top 3 reasons why Gold is a worthwhile investment.
Gold is often seen as a hedge against inflation and currency devaluation, as unlike fiat currencies such as the USD, the EUR or the GBP, which are manipulated by central banks (quantitative easing programs, interest rates, etc.), it benefits from its relative scarcity, is not backed by any worldwide institution, and preserves its value and purchasing power over the long term.
Gold is a thousand-year-old investment that has proven itself over time. Traditionally a safe haven in times of higher stress and volatility on the stock markets, it has the advantage of being a tangible asset, which is nobody’s debt (unlike government bonds, for instance). Gold prices are also way less volatile than other financial assets, as its prices are less influenced by rumors or other events. That’s why it is considered a safe asset.
According to the World Gold Council, Gold demand fell 1% in 2019 as “a huge rise in investment flows into ETFs and similar products was matched by the price-driven slump in consumer demand”. However, the situation with the COVID-19 pandemic supported safe-haven investment demand for the yellow metal, which has reached 1,083.8 tonnes (t) in Q1 (+1% YoY). Most analysts expect the demand for the metal to continue to rise this year.
Different factors affect the price of Gold, such as interest rates changes, the evolution of the American dollar (as Gold is priced in USD), as well as demand from central banks, important markets like the US, India, and China, and private companies. Demand for safe-haven assets like Gold should keep rising in this environment, given the increasing fears regarding second waves of coronavirus in large economies like the US and China, at a time where Europe is slowly re-opening its borders and re-starting its economies. Global growth might be at risk, which might put additional bullish pressure on Gold, providing great opportunities for investors to make profits.