Gold is an interesting method of investing nowadays. Investors can invest in gold through buying physical products such as gold bullions and coins, exchange-traded funds (ETFs) or buying gold mining stocks. Gold has been more popular than ever following the 2019 COVID pandemic. Gold has the ability of preserving wealth for investors, more so than any other form of investment. The value of gold has grown so profoundly over the years; one ounce of gold back in the 1970s is now worth around 650% more than it was back then. Here are some reasons why investors like to invest in gold:
Gold As A Hedge Against Inflation
Gold has a major hedge against inflation as gold appreciates as inflation rates rise. When realising the loss in value of their money, investors will start positioning their investments in alternative assets that have traditionally retained their value. Therefore, you find that investors often jump to gold when they see their cash is losing value. As gold retains its value, it’s considered to be a safer type of investment as gold can be sold when they make their money back.
Gold As A Safe Haven
Gold is often referred to as a safe investment haven. Gold works as a safe haven for investors against the stock market. In general, the relationship between gold and stock market is inversely proportional to where prices in the stock market will fall when gold price is up. It has been observed historically that during difficult events when the stock market was most pessimistic, gold demands pick up fast. Consequently, investors will often buy gold as a safety cushion whenever there are news events that hint at some type of global economic uncertainty. For example, the Russia-Ukraine conflict pushed up the price of global gold prices to $2000 per ounce during the first quarter of 2022.
Gold As A Diversifying Investment
Gold is seen as a diversifying investment as it is not correlated to stocks, bonds or real estate. Gold has historically had a negative correlation to stock and other financial instruments. Investors combine gold with stocks and bonds in a portfolio to reduce the over volatility and risk.