Gold is one of the oldest investments in the world. Inflation is the erosion of purchasing power. There are many reasons to invest in gold, but there are also many downsides. On the positive side, gold is recognized as a safe investment, has low long-term volatility and is easy to understand.
. It has been used as decoration since prehistoric times and became a globally recognized currency several thousand years ago. This long history has led investors to view gold as a safe haven. Stocks, bonds and other investments can gain value or lose value.
Gold, on the other hand, has been valuable throughout human history. Most signs suggest that it will continue to be valuable in the future. However, there are doubts as to whether gold is really a good hedge against inflation. A Wall Street Journal analysis revealed that, since the early 1970s, gold's track record as a hedge against inflation has been uneven at best.
However, the fact that investments in stocks tend to gain value in the long term does not mean that they cannot lose 10%, 20% or more in the short or medium term. Gold has lower volatility than other assets, such as stocks. It operates at a relatively slow pace, with a price that fluctuates within tight ranges. As a result, gold yields are much lower than gold stock yields.
As a result, gold yields are much lower than those of stocks, which are more volatile and experience strong price movements. Gold has the potential to shine in times of geopolitical and market volatility. A small allotment to gold may be suitable for investors looking for real assets to diversify their portfolio. However, investors should balance the size of their position, given the lack of performance and current low inflation expectations.
However, you should be aware of the possible risks involved in this type of investment. First of all, you need substantial capital to be able to buy gold. Another challenge is finding the best storage and security for your assets. Finally, its speculative value nature may be precarious for conservative investors.
One of the main reasons to include gold in your portfolio is to protect yourself against inflation. As a value storage vehicle, gold has managed to perform quite well over time. Inflation can erode a dollar's purchasing power, but gold can help protect you against that loss in value. One of the benefits of investing in gold is the way it protects itself against market collapse.
However, in the same way, gold prices do not usually show significant gains during periods of market stability or progress. When investors have high confidence in the financial markets, they are less likely to put their money in gold, which means that the supply of gold in the world increases, which can lower prices or keep them at a stable level. While it is highly unlikely that you will lose money with an investment in gold over a period of ten or twenty years, if that period coincides with a time when the markets are functioning very well, your investment may not generate the return you expected. The first forms of paper money in Western economies were gold or silver receipts that were kept in a vault.
One of the main reasons why investors consider adding gold to their portfolio is the security of knowing that the price will increase steadily over time. If you're concerned about volatility, especially when it comes to your significant retirement funds, which must remain safe and secure, gold may not be the recommended asset for you. In addition, concerns about the possibility that a central bank or national government will sell a large part of its gold supply may raise fears that the price of gold is about to fall. As the world population continues to grow and many economies in the third and second world begin to demonstrate their financial strength, demand for gold continues to rise at a breakneck pace.
If you had an infinite amount of money, you could theoretically try to convince all the owners of all that gold to sell it to you. Specifically, the inclusion of gold as part of a diversified portfolio protects it against “annihilation of wealth” in extraordinary situations, such as a serious economic depression or a stock market crash. Other risk factors to consider when it comes to gold are that the raw material does not generate cash flows or profits and requires storage costs. Precious metals were also convenient to use as money, since they were easier to transport than any other valuable item.
The production and sale of precious metals can be affected by economic, financial and political factors, which can be unpredictable and significantly affect supply and prices. So what's the best way to invest in gold? The following graph shows the price of gold (in black) against some of the world's biggest gold miners and sellers over the past five years. .