There are two sides to every gold coin — investing in gold may be profitable or it can be a losing proposition — and then there’s the truth. The truth is always in the center, and in this situation the reality is based on a variety of criteria that include your investing goals, time horizon, and, ultimately, your investment approach.
Gold, the most malleable of commodities, has suffered a setback in 2021, owing in part to rising bond rates. But even if everything isn’t always perfect, it will always be there. For millennia, gold has been a desirable commodity for investors, serving as a money and a symbol of wealth in many forms.
However, there are a few downsides to gold acquisition. For example, gold does not have a stable rate of return. While there are several advantages to investing in gold, there is one significant disadvantage. Gold is not a reliable source of revenue for investors. Gold has no production, whereas publicly listed corporations generate goods and services that customers value. This is a “severe structural disadvantage relative to other asset classes,” according to Michael Reynolds, vice president of investment strategy at Glenmede. While equities provide dividends to investors and bonds pay interest, Reynolds states that “gold does not spontaneously spawn additional gold.” Rather, you profit from the rise in gold’s price.
“Gold gets 100% of its rewards from price movement, which may and has resulted in extended periods of underperformance,” adds Reynolds.
However, there seem to be more reasons today to invest in it still. Here are three compelling reasons to invest in gold.
Gold is Easy to Sell
Physical gold is available in two forms: gold coins and stamped gold bullion (bars) with a purity level. The gold content, rather than the quality or rarity, determines the worth of your gold.
While this value fluctuates, actual gold is easier to dispose of, which is one of the main reasons investors seek it out. Even if the return rate isn’t what you’re hoping for, there are always customers willing to buy gold.
Preservation of One’s Wealth
Many investors have put their faith in gold because of its ability to preserve wealth. Consider the difference between possessing £50 in gold and owning a £50 note in 1980. Because gold has increased in value since then, the value of the gold now significantly exceeds the original £50 investment. The £50 note, on the other hand, has not risen in value and, as a result of inflation, cannot purchase as much as it might in 1980.
Hedge
The value of gold is usually inverse with the rest of stocks. This means that it can be a balancing asset for you in your investments. People will buy gold in order to hedge their investments. They know that if the stock market plummets they’ll still be able to use their gold to build their portfolio and trade at that time. Then once the market equalizes again they are able to buy gold bars at a cheaper cost and sell their stocks. No matter how the market is looking, they are able to find balance in their investments and create revenue out of their diversification.
Safe Haven
Gold, unlike currencies, is unaffected by interest rate changes and cannot be created to manage supply and demand. Gold is a rare asset that has held its value throughout time and has demonstrated its usefulness as an insurance policy in the case of a downturn in the economy. As a result, many investors perceive gold to be a safe haven — and it’s proving itself right.
