Gold has been around for thousands of years and is recognized as valuable everywhere in the world. Regardless of the social, political or financial environment, gold has never lost its value.
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Gold is often seen as a hedge against inflation. This is because as inflation eats away at the US dollar, the price of each ounce of gold also increases in relation to the dollar, making gold owners have a more valuable asset.
Over the past few months, several countries around the world have experienced high inflation, soaring interest rates, rising living costs, and growing economic and geopolitical uncertainty. In such scenarios, investors are increasingly shifting their money to precious metals like gold and silver due to their inflation-hedging properties.
Gold has a huge advantage over fiat money, in that its quantity is finite and countries cannot produce more gold than there is available to mine. On the other hand, fiat currencies can be printed by governments at will, and printing too much of them often contributes to disastrous consequences such as hyperinflation.
Fiat currencies are essentially backed by the governments that issue them. If countries print too much money, their purchasing power will decrease and the economy will be in a constant state of high inflation, making the currency less valuable. Printing more money may initially act as a monetary easing measure, but sooner or later it almost always leads to more inflation.
Another advantage is the liquidity of this precious metal, which can be easily converted into fiat currencies. Gold also has a consistent value across countries, whereas things like fiat currencies, assets, and property tend to vary significantly across the globe.
One of the defining characteristics of gold is its low correlation to traditional assets. This means that when other investments experience volatility during times of economic hardship or geopolitical uncertainty, gold often moves in the opposite direction or remains relatively stable. This low correlation makes gold an effective tool for balancing a portfolio. Adding gold to a portfolio can reduce overall portfolio risk and increase stability. Owning gold is also often beneficial for investors during periods of high debt levels in countries.
Investing in gold can be done directly, through gold bars, coins and jewelry, or indirectly, through gold exchange-traded funds and shares of gold mining companies. Typically, first-time investors or those new to the gold market will choose to invest in gold indirectly, to gain a better understanding of the market before deciding to invest more capital.
However, gold is not a yielding asset, which means that in a high interest rate environment, such as the one most countries in the world are experiencing right now, investors may still be a little hesitant to invest in gold. As for whether investors should choose gold over other yielding assets at the moment, leading economists say that gold may not be the most attractive investment right now, but the precious metal may still deserve a place in a portfolio during these uncertain times.
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