When people buy gold, it’s usually for three reasons, and what’s interesting is the reasons aren’t what we think they will be. People who wonder if gold a good investment may be interested to know what the top three reasons are for buying it. The three reasons most commonly used for buying gold are:
Gold becomes an investor’s hedge against the economy.
Gold provides investors a safe haven no matter what’s going on in the economy.
Gold’s a direct investment that seldom loses value.
When you buy gold most of the time, you don’t have to worry about a stock market crash or a tanked economy. Many people think that no matter what’s going on in the world, gold insulates them from most of the fallout.
It doesn’t even matter if there’s an economic collapse. Gold is also widely considered a true hedge against inflation. Read on to discover if gold is a good investment and detailed reasons as to why that may be true or false.
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Is Gold a Good Investment?
The demand and value for gold are often defined and governed by the demand for jewelry, technology, or industry reasons. Gold’s value definition is also set by central banks and investment firms. In fact, if people, in general, didn’t value gold, gold would cease being a valuable investment tool.
One of the most common reasons people invest in gold that’s part of the three listed reasons is so they can use it as a hedge. When using gold as a hedge, you’re attempting to secure your investment dollars. The gold serves as a way you can offset any other investment you have that may incur losses.
But there’s also another reason to buy gold as an investment. Gold can serve as collateral to secure loans. Any investment you have can serve as collateral for almost any type of loan you need.
Empirical evidence researched in the U.S., Britain, and Germany in different colleges from Trinity College to University of Western Australia found that gold is an effective hedge against stocks falling in price. Yet, there are other empirical studies that state gold isn’t an effective hedge against falling stock prices.
Is there a clear, cut way to find out if gold is or isn’t an effective and valuable investment?
Gold Serves as an Effective Hedge Against Stocks
Most of the time, there are geopolitical worries in various countries across the world’s stage. In 2019, the market is worried about Brexit talks in the U.S., the political divide going on in the U.S., the impact of tariffs on the economy, and more. All of these situations can make gold seem like a stable, enriched investment that doesn’t need to worry about any geopolitical event no matter where it’s originating.
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That’s because gold represents the past, present, and future. Gold is so basic as an investment it gives investors no quarterly reports or dividend yields. This year gold futures price per ounce is about $1500.
The World Gold Council reports if stock prices rise more than two standard deviations, the value of gold goes up too. That has much to do with gold being used as a diversification tool that serves as a consumer good, a high-price luxury item and an investment.
Gold Does Not Serve as an Effective Hedge Against Stocks
In the past few years, gold has fared better than other precious metals like silver or platinum. But gold has also presented stalled growth as the value of paper currency eroded. Gold’s future performance can be described as risky or uncertain due to its stalled growth pattern seen on and off throughout the past few years.
Then you have the whole problem about when to pull out of gold as an investment when you’re using it as a hedge against inflation or geopolitical risk. The Federal Reserve quantitative easing program is a very liberal policy that ensured gold prices rose and they did so admirably. But, no one can predict anymore which way gold will go and when.
Gold Is a Safe Haven Investment
Gold is unique as an investment tool because 90% of gold demand is based on demand. It’s the simple principle of people wanting a product because there’s a value attached to it. Right or wrong, the value attached makes the product have demand.
The financial result is the more people demand to have the product, the more the product goes up in value and price. What’s more the world has always used gold as a form of currency or wealth asset regardless of the money system the society used. Gold also has some intrinsic value because you can’t make more of it when you want some.
Supply and demand also affect the price of gold because it’s a precious metal that can’t be made and there’s a limited supply of it. It’s the physical form of gold that gives it intrinsic value and makes it a wonderful safe-haven investment.
Gold Isn’t a Safe Haven Investment
You can go to many articles and read the advice, facts, and figures while perusing the information and know most companies are trying to give you the latest and greatest details so you can make educated investment decisions. Many investors believe that gold does store value well, but it doesn’t grow your investment, and therefore, while it does serve in part as a safe haven, it doesn’t complete the definition. The reason gold is viewed by some investors as a possible investment safe haven is the definition of what features comprise a safe haven investment.
The definition of safe haven changes all the time. Gold becomes a great safe haven when there are equity market issues. Yet, gold isn’t that great of a safe haven when U.S. Treasury Bonds are strong and serving as superior safe-haven assets.
Gold Is a Direct Investment that Never Loses Value
Many financial advisors recommend you buy gold as an investment due to its steady, solid value. But those same advisers may tell you to buy only about 5% of your overall investment stake in gold. That’s because it can be a financial catastrophe when you don’t know when or how to move it as an investment diversifier.
Nine times out of ten, gold doesn’t move in tandem with stock. That’s because gold is neither a liability nor a security. Gold’s value will never fall to zero, and it is a low-risk investment.
There’s no reason you shouldn’t buy gold if you learn how to buy it, use it, sell it, and store it. You need a gold strategy, and it’s not an easy investment to make or govern because its an asset that’s sold off out of fear when the price of gold drops. That’s never when you should sell the gold assets in your portfolio.
Gold Isn’t a Direct Investment that Never Loses Value
There’s rarely a lot of liquidity in your gold investment, and you will pay for any storage or insurance costs you need to have for the gold in your investment portfolio. The returns on your gold are sometimes not as healthy or grow as well as some of your other investments. Also, your gold investment doesn’t contribute to overall economic growth.
Equity, bonds, bank deposits all offer something to the economy to keep it flowing in a positive direction. Gold doesn’t provide any of the stimuli that are needed from time to time in the economy. Then there’s trying to figure out where to secure the gold so a thief can’t get to it while you’re waiting for the gold’s value to go up and you can sell it at a profit or buy more investment portfolio assets.
The Bottom Line
The bottom line on whether or not gold is a good investment can be argued for decades by various investors, financial advisors, and everyone in-between because almost all the arguments about gold have facts to back them up. There are just as many facts that back up positive reasons why you do need to invest in gold as why you want to stay away from it as an investment portfolio asset. The best way forward with gold is to use it as an investment tool when you buy it but also offset it with other financial assets in your investment portfolio.
That way, no matter what’s going up or down in the market, you’ve covered your bases and kept yourself above taking a direct hit.
Your Next Investment Step
As you’re determining if and when is gold a good investment, keep in mind there’s plenty of informational articles out there to investigate if you need more details on gold. Something to keep in mind is gold has been valued almost since the beginning of civilization, and as such it holds not only investment value but also historical and psychological pull on all of us.
When you’re ready to take your next investment decision step, reach out to someone who can provide you with more information about the facts and figures, you need to make an educated analysis. The difference between being in the know with your investment decisions and just assuming you know enough to make a decision can mean the difference between a financial mistake or a valuable asset for your future.
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TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
