Gold is considered one of the best commodities to invest in, especially taking into consideration the high volatility of the global financial markets and the multiple crises in recent years. Gold has seen a significant increase in its popularity, especially in recent years. But even so, many investors are still uncertain about whether gold could be a good investment, and the best way to buy the commodity.
In order to understand all these things, you need to understand the nature of the gold investment and the different investment methods so that you can take the proper approach, in line with your goals and strategies.
Understanding the benefits and possible risks of gold investment
Gold as a currency
Gold has been used as currency for a longer period of time than any other material. Although few cultures didn’t consider gold to be the best currency, the gold was established as a global currency starting in the 19th century. Even though this has changed in recent history, many people still believe that gold should be used again as currency.
Most of the world’s major economies have given up using gold as currency in the Great Depression, and the United States has completely abandoned this standard during Richard Nixon’s presidency.
Nowadays, almost all modern currencies are cash money, ie their value is guaranteed by the issuing government.
What makes gold a good investment
Gold is usually purchased as hedge against different types of market risk. This means that gold can provide some protection from weak performance in different markets, inflation and currency price variations.
The price of gold is determined through supply and demand, not through currency valuations or market decline.
Gold can be added to a well diversified portfolio. It usually has a small correlation with the US stock market, emerging markets and high yield bonds.
Gold also serves as a hedge against inflation, as its price usually tends to increase with inflation. This is because inflation makes many investors buy gold as an alternative to cash, and therefore increase its.
Gold is generally considered a good repository of value. While the purchasing power of the currency erodes over time due to inflation, gold generally maintains its value.
What could make gold a bad investment
There is a growing concern among investors that gold is not a safe investment, as some believe. A group of researchers in the investment field pointed out that demand for gold does not actually rise when stocks fall or currencies lose their value, contrary to popular belief. Many believe that gold is rising simply because of the frightened investors who are rushing to buy it because they expect prices to rise. If this is true, then gold is not a safe investment as some claim.
An elaborate examination of gold’s history shows that it has performed well only in times of extreme inflation or market decline. While some expect that gold will become the alternative currency in the event of economic collapse, others are fairly skeptical about this. Gold does not provide guaranteed return on capital, while many well-known securities do.
Factors that affect gold’s value
Buying gold has been a popular tool for lots of investors, and there seem to be a lot of factors that affect the prices.
The Washington Agreement on Gold negotiated in 1999, was an agreement between 14 countries to limit the amount of government-owned gold to be sold in any calendar year. The agreement was motivated by the fear that an oversupply of gold would lower its prices.
An economic downturn may cause investors to sell their gold for real cash. This would then increase supply and reduce demand, leading to lower prices.
Crises or wars lead to increased investor demand for gold, largely due to fear of devaluation of currencies. Investors buy gold stocks and commodities as a measure to protect against the crises which may arise and secure their investments.
Stay tuned for more articles on gold and other commodities, and other forms of trading on the global financial markets.
Be the first to comment