Minimum risk & Maximum profits: Invest in Gold
Mohammed Shaheen
02-06-2021
Gold is the best investment in the world today and it’s poised to go much higher in the years ahead. Gold is - and always has been - the world’s favorite safe haven. That is, during times of uncertainty, insecurity, economic or political upset, war, devaluations, and more, gold has always come out as #1. And this impressive track record goes back more than 5,000 years.
Investment in gold is best suited for the investment strategy than another. You could purchase physical gold coins or bullion, but they must be stored in a secure environment. This may involve paying a broker, bank, or another firm a fee. While the world is seeing a pandemic crisis, the financial market including stocks, forex, and cryptocurrencies has also seen a major downfall.
The second wave has hit not the people globally but also has shaken the financial markets globally. Gold has stood against all the odds and has been in the safe chart position. Let’s read the 5 reasons to invest in gold.
Increasing Demand
Demand for gold has also grown among investors. Many are beginning to see commodities, particularly gold, as an investment class into which funds should be allocated. In fact, SPDR Gold Trust became one of the largest ETFs in the U.S., as well as the world’s largest holder of gold bullion as of 2019.
Portfolio Diversification
The key to diversification is finding investments that are not closely correlated to one another; gold has historically had a negative correlation to stocks and other financial instruments. Recent history bears this out:
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The 1970s was great for gold but terrible for stocks.
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The 1980s and 1990s were wonderful for stocks but horrible for gold.
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2008 saw stocks drop substantially as consumers migrated to gold.
Properly diversified investors combine gold with stocks and bonds in a portfolio to reduce the overall volatility and risk.
Inflation Hedge
Gold has historically been an excellent hedge against inflation because its price tends to rise when the cost of living increases. Over the past 50 years investors have seen gold prices soar and the stock market plunge during high-inflation years. This is because when fiat currency loses its purchasing power to inflation, gold tends to be priced in those currency units and thus tends to rise along with everything else. Moreover, gold is seen as a good store of value so people may be encouraged to buy gold when they believe that their local currency is losing value.
Deflation Protection
Deflation is defined as a period in which prices decrease when business activity slows and the economy is burdened by excessive debt, which has not been seen globally since the Great Depression of the 1930s (although a small degree of deflation occurred following the 2008 financial crisis in some parts of the world). During the Depression, the relative purchasing power of gold soared while other prices dropped sharply. This is because people chose to hoard cash, and the safest place to hold cash was in gold and gold coin at the time.
Weakness of the U.S. Dollar
Although the U.S. dollar is one of the world’s most important reserve currencies, when the value of the dollar falls against other currencies as it did between 1998 and 2008, this often prompts people to flock to the security of gold, which raises gold prices. The price of gold nearly tripled between 1998 and 2008, reaching the $1,000-an-ounce milestone in early 2008 and nearly doubling between 2008 and 2012, hitting above the $2,000 mark.1 The decline in the U.S. dollar occurred for several reasons, including the country’s large budget and trade deficits and a large increase in the money supply.
