Investing in gold has always been a reasonable way to preserve wealth. As a store of value, gold has been around for thousands of years. Even today, those who don’t want to watch their wealth wither away under the pressure of inflation and unlimited money printing rely on gold as a staple of their investment portfolio.
From the perspective of an investor, several reasons exist why owning gold one way or another makes sense.
Hedging Against Fiat Currencies
Exposed to the whims of central authorities that never fail to abuse their powers, fiat currencies don’t have a reassuring track record. Their value tends to go to zero, unlike that of gold and other commodities.
And, unlike other commodities, investors can own physical gold in the form of bullion, coins, and jewelry.
Economic uncertainty and inflation bite into the purchasing power of currencies such as the USD. Gold has historically acted as a hedge against both scenarios. When inflation strikes, the price of gold goes up. Those who hold gold during such times will see their investment appreciate.
Gold is a Safe-haven Asset
Economic and political uncertainties diminish the risk appetite of investors. During times of strife, instead of putting their capital into high-risk, high-reward ventures, investors look for safety and certainty. Gold, with its track record of thousands of years, is the definition of a safe haven.
Using Gold to Diversify Investment Portfolios
Gold can give investment portfolios stability, substance, and diversity. It works well as a hedge against currencies, other commodities, and a range of other traditional investment vehicles. It is not correlated with stocks or even real estate.
Earning Dividends off Gold Investments
Gold stocks can open an entirely new dimension for gold investors. Although they tend to rise and fall with the price of gold, some stocks track mining companies that remain profitable even amid falling gold prices.
Some gold stocks may yield strong-enough dividends to be attractive to growth investors.
Dividend-paying gold stocks tend to do well amid gold market downturns, lending portfolios another layer of stability.
How to Invest in Gold
Investors can own physical gold in the form of bullion, coins, or jewelry. When dealing with physical gold, investors should consider paying for storage and insurance.
Typically weighing from one ounce to ten ounces, gold bars are relatively expensive investment options. Gold coins and jewelry can be more accessible. However, jewelry carries additional risks stemming from purity and authenticity issues.
Gold ETFs and mutual funds offer exposure to gold’s stability while being more liquid than physical gold holdings.
ETFs and mutual funds may not track the price of gold closely.
Futures and options are speculative ways to invest in gold. Though they offer exposure to the price of gold, futures contracts and options do not provide stability or act as safe-haven investments.