Learn Why To Invest In Gold
Based on historical averages. An investment of $100,000 from 2000 – 2019
Past Performance Does Not Indicate Future Results
REASONS TO INVEST IN GOLD
Gold has been around for over two thousand years. The long lived tradition of gold is a testimonial of their endurance and strength. The first pure gold coins were minted during the Iron Age around the 6th and 7th centuries B.C. when King Creosus ruled Lydia.
History of Maintaining Its Worth – Gold’s primary function is storage of wealth. It’s been used to keep wealth mobile, tangible, and grants owners an easy way to transfer their wealth to next of kin.
Weakening US dollar – The US dollars dominance as a world reserve currency has been waning over the years due to numerous factors such as the US trade deficit and more money being printed. This propels investors to flee to the stability and safety of gold. From 2000 to 2018, the price of gold went up $1000 an ounce. Between the crash of 2008 and 2012, it nearly tripled hitting nearly $1800 to $1900 an ounce.
Inflation – When inflation goes up, usually so does gold. Investors see gold as a hedge against inflation. During periods of high inflation, investors have seen gold prices soar while the markets sunk belly flopped.
Global Uncertainty – Gold holds its value in the face of both financial and geopolitical volatility. When tension in the world goes up, people see gold as a safe place to turn to, and this drives up the price. This gave it the nickname “crisis commodity”.
Supply Constraints – There are two reasons why gold is in limited supply. Since the 90’s much of the sales of gold bullion has been from the reserves of global banks. This outflow from the banks slowed tremendously in 2008. Simultaneously, mining new gold from the earth has been going down since 2000. It can take 5 to 10 years to bring a new gold supply source into production. Simple supply and demand laws say the less gold there is, the higher the price.
Increasing Demand – Communities in emerging markets where wealth is increased saw a bigger demand for gold. Gold is woven into the fabric of these countries. Places like India, gold has multiple uses including jewelry. Demand is so high during certain seasons (weddings in October) that the entire global supply can be affected. In China, gold bars are a form of saving, and demand has been continuous. Gold is also used in technology. Cell phones, smart watches, computers and laptops, and circuits. With the increased demand from technology producers, global gold demand has increased by its side.
Diversification – The key to portfolio diversification is find assets that have a negative correlation. When global financial markets go down, gold goes up. Intelligent investors combine gold with stocks to reduce the overall risk and volatility.
The Final Verdict
Gold is an important hedge in a properly diversified investment portfolio. Its price goes up during events which cause a decline in the value of stocks and bonds. Although gold’s short term value can fluctuate, long term it maintains its value. It is an investment highly worth considering.