In the past, gold and other precious metals have been used in international trade. Over time, these metals did not lose their value, and they have rich histories of being owned by kings and royalty. Even the coins in the past were made of gold, and they first appeared around 650 BC. Others wanted to have gold bars and coins because they represent wealth, and this is why you should see if this is an investment for you.
Nowadays, economies and societies have placed their faith in gold, and they consider it a hedge against inflation and a safe haven during sudden economic downturns. This is insurance against tough times and having a small percentage of precious metals in your portfolio will mean that its value won’t drastically decrease with all the paper assets you have. Here are other reasons why you should consider owning precious metals:
They Have a History of Holding their Value
Unlike fiat money and coins, gold has maintained its value during the recession and more challenging economic times. People see it as a way to pass it on to future generations and preserve their wealth overall. Many are now getting it from the birch gold group to add a physical asset that they can hold upon retirement. These precious metals don’t corrode or fade in color, and they are very malleable.
They can always be melted over the flame and be used in many industrial applications. They are present in technology, electricity, dentistry, and other large-scale operations today. Aside from this, gold has an attractive property that’s unlike the other elements, and it absorbs light and retains its beauty over time.
Dollar Weakening
One of the most important reserve currencies in the world is the US dollar. When its value drops compared to other currencies, such as in the times of 2008 and 1998, the investors are flocking to invest in precious metals, which makes their value rise even more. In 1998 alone, the price of gold has nearly tripled, and it reached a $1000 per troy ounce achievement in early 2008. This happened during the 2020 pandemic as well, when the economy’s trajectory began to feel uncertain as businesses closed their doors.
In 2012, the $2,000 mark was hit, and many investors were able to profit when their portfolios included precious metals. Know that there are so many factors why the US dollar declines, and this could be because of trade deficits, the US’ large budget, and the increase of circulating supply of money in society. More about trade deficits on this page.
A Hedge Against Inflation
Historically, the prices of gold increase when stocks and mutual funds’ values begin to drop. This is considered a hedge against inflation because the prices tend to increase when the cost of living in a country also goes up. In the past five decades, investors have seen the prices soar over the thousand-dollar mark as the stocks begin their downward plunge during the years of inflation. This is when a country’s paper money begins to lose its purchasing power.
Gold and other precious metals are priced in the currency unit. When you need more money to purchase bullion, the price will generally go up with food and other commodities. Another thing is that many people see gold as a store of value, and they are encouraged to buy more of these than their local currencies.
Protection Against Deflation
Deflation is a time when prices begin to decrease, and businesses begin to slow down their activities. It’s also an event when the country and the economy as a whole are burdened with so much debt. This has not been repeated since the 1930’s Great Depression, although a small deflation occurred in the 2008 financial crisis.
During the period of the Great Depression, gold’s purchasing power soared when the other prices have sharply dropped. This is when people have chosen to hoard cash, and the safest haven where they can park their money is in a gold coin.
Why Choose Precious Metals?
When everything is “stable,” it’s essential that you invest at least 5% to 10% of your portfolio in gold. The purpose of this is because of diversification, and experts like Ray Dalio may hold the same views. More about diversification on this site: https://www.investopedia.com/terms/d/diversification.asp.
A plunge in the stock market had hurt countless Americans, and this was seen in 2020. The retirement accounts that took a lot of years to build have lost double digits in just weeks. Aside from the stock market’s volatility, it’s also essential to know that the dollar’s value is constantly diminishing. This means that anyone who is holding cash reserves in their accounts is losing their purchasing power every time.
On the other hand, there are precious metals that have increased in value over the past year. They are the best assets that may offset any losses that you’ll have with stocks and bonds. Utilizing the inverse relationship is essential for many investors so they can better protect their portfolios.
You can also make gold a way to hedge against inflation, and it can add more stability, especially if you’re nearing retirement. The economy today may show a strong sign that you should buy. The Federal Reserve had thrown trillions around as a relief for the COVID crisis, and the dollar’s position may be riskier. This is why you should have a hedge against sudden market downfalls so that it won’t hit too hard.
