Ever since Bitcoin and other cryptocurrencies arrived on the global financial landscape, investors have been spoiled for choice. Real estate, currencies, equities, debt instruments, cryptos, gold – investors are now finding it difficult to find the right investment channel. However, many financial advisers are still bullish about the bullion when it comes to making long or medium-term investments. Hard nosed as they are, the finance guys list several reasons behind their backing of gold and silver as preferred investment choices.
One reason why many people buy gold is because of the stability of this metal. Unlike many other investment instruments, gold has held on to its value.
Smart investors use gold to hedge their risks. This means that when the value of their other investments plummets, gold comes to the rescue. It is because of this inherent stability that gold has always been a preferred investment avenue. Says one of the managers at one of the leading bullion trading firms, ‘ The use of gold in portfolio helps provide long term balance in any prudent investment portfolio’. It would be interesting to note that gold is being traded for more than 2000 years.
But what about silver?
Well, truth be said, these two metals, i.e. Silver and Gold don’t differ much when your prime focus is their stability. Buying silver from the merchants was a widespread practice back in the 60s and 70s, and with tech-savvy generation taking the lead, individuals now prefer to perform detailed online research on this white metal before landing their choice on online buying platforms like Gold Bullion Australia that offers convenience and assurance.
Moreover, it is no more a secret that prices of gold and silver have been going in the same direction for the last 70 years! So, it makes great sense to invest in this white metal also.
- Hedging against US dollar
Gold insulates investors who hold US dollars. Not just retail but also institutional investors use gold to protect their investments in case if the value of US dollar plummets.
For example, when the US dollar declined from 1998 to 2008, the value of gold rose concomitantly. In 2008, the price of gold per ounce was $1000 but it rose to $1800 per ounce in 2012. All this while , the US dollar was declining because of various reasons.
- Hedging against inflation
This being a resource starved world, prices of commodities rise every year. Inflation is the basic feature of the modern world and it eats away the savings of people.
To protect their savings, many investors buy gold and silver. There is a direct correlation between the price of gold and inflation. In case when prices rise steeply, stock markets plunge. To offset these losses, investors often buy gold and silver.
As the number of people entering stock markets rises, more and more people will start buying gold. To plug this potential demand, many Australian companies are ramping up their operations.
- Shield against deflation
Deflation is the opposite of inflation. In this situation, prices decline, demand for products and services cools down and the economy contracts overall. In such a situation, the purchasing power of gold rises. This means that if the purchasing power of the US dollar is plummeting, holders of gold can sit back and relax; their investments are safe. Says
There has been little or no deflation ever since the Great Depression hit the United States in the last century. But if deflation returns then investors of gold don’t have to worry much.
- Crisis Commodity
Gold becomes even more valuable when there is some geopolitical instability. When people flee from part of the world to another, they carry gold to carry on with their lives. Since gold is a universal currency (along with the dollar), it helps migrants pay their bills, buy food and make their lives more comfortable. During geopolitical crises, gold often outperforms other global currencies.
- Supply bottlenecks
During the last decade, much of the gold that came to the markets was made available by its sale by the central banks of the world. For example, the Federal Reserve Bank of the United States sold billions of dollars of gold in the open markets during the last decade.
Simultaneously, gold is also supplied by gold mines across the world. However, supply of this metal through mining has been declining. This supply side scarcity is directly responsible for the price rise of gold. That is one reason to buy gold; its value keeps going up all the time.
To conclude, gold is the best possible investment option as of now. It is an effective shield against inflation, deflation, and global unrest. Gold is also used as a hedge against the US dollar.