In-depth Analysis

Why is Gold so often added to investors’ portfolios?

Valued for thousands of years, Gold has fascinated mankind throughout history. Unlike today’s fiat currencies, which are mostly held online, it is possible to own physical Gold, which tends to reassure investors. But it isn’t the only reason why investors like to add Gold to their portfolios. Let’s discover why Gold is so often bought by investors.

Gold acts as a hedge against inflation

Gold is often regarded as an inflation hedge – a dependable measure of protection against purchasing power risk, as its value rises when the dollar’s buying power falls. The mixed record, however, shows that investors concerned about upcoming and rising inflation would be taking a gamble by including the yellow metal in their portfolio as a hedge.

Gold is a great option for securing investments in times of high uncertainty and volatility

Gold is considered a safe-haven asset, and one of the most secure investments favored by investors in times of high uncertainty. When investors want to protect their assets from slowing economic growth, unfavorable economic events, rising uncertainty, and higher volatility, they invest in Gold, which pushes demand higher.

Gold preserves wealth over time

Since its value has generally been steady through time, especially compared to other options on the market, Gold is seen as a store of value and a way to preserve investor wealth over time. Gold cannot, for instance, deteriorate in the future and doesn’t lose its value due to age.

Moreover, unlike fiat currencies such as the British Pound, the Euro, or the American Dollar, Gold’s value cannot be controlled by a central bank’s monetary policies, and isn’t influenced by printed money and the variation of fiat monetary supply.

Gold is a liquid asset

Gold is a highly liquid asset, which means that you can easily, quickly, and cheaply buy/sell it. It also brings you more flexibility and choice about where and when to do your transactions. 

This aspect of Gold is essential if you want to quickly buy Gold to protect your investments, or if you need to sell your Gold quickly for emergencies because this means that at any given point in time, there will almost always be Gold buyers and sellers.

Physical Gold doesn’t require much maintenance

Compared to other investment vehicles like real estate, Gold doesn’t require much maintenance. All you need is a location to keep your Gold safe, without any real need for maintenance, as Gold is a timeless asset. 

Moreover, you can invest in different types of physical Gold such as jewelry, coins, bars, and bullion. Physical Gold is also a good option if you want to travel with it and cross different borders.

Taking advantage of Gold can be done through different investment and trading methods

There is more than just buying Gold to enjoy all the benefits of this asset. Depending on your investment or trading strategy, there are different financial products you can use to invest in Gold. 

If you’re using active trading strategies, such as scalping and day trading, and you want to bet on short-term price movements for all sorts of market conditions (long and short-trading), you can use derivatives on Gold like CFD (Contracts For Difference), futures, ETF (Exchange-Traded Funds), and options. 

In that case, you need to be sure that you know how to best manage volatility and risk when trading because you will mostly be using leverage and margin trading. 

It is also possible to invest in Gold indirectly, through Gold miner shares for instance. 

Final word

If you do not have Gold in your portfolio yet, you might want to consider buying it for the above-mentioned reasons, as well as for diversification purposes. It’s important not to put all your eggs in one basket! 

Owning some Gold might help you diversify your investments with a relatively safe asset. Moreover, you can buy physical or digital Gold, as well as financial products on Gold, which means that you have several investment options.

 

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