There are plenty of investment advisers who encourage the purchase of gold as an investment. However, it is just as prudent to own physical gold in addition to gold as a commodity. Gold serves a myriad of purposes aside from enhancing the aesthetics of jewellery and other niceties. This precious metal has been coveted throughout history and will likely be in heavy demand thousands of years into the future, if not forever. In fact, gold was used in coins as far back as 800 B.C. The first completely pure gold coins were created three centuries later under the rein of King Croesus of Lydia.
As time progressed, people bought gold coins as well as other forms of gold for a plethora of reasons. Gold has maintained its value across posterity while other items like currency and coins have lost considerable (or all) value. It is clear that people across all cultures view gold as a means of preserving and passing on wealth to their offspring and future generations.
Own Physical Gold to Hedge Against a Weakening of the U.S. Dollar and Other Currencies
Though the U.S. Dollar is one of the most revered reserve currencies in world history, its value can fall quite easily. If such a decrease occurs like it did in the late 1990s and early 2000s, all sorts of investors and everyday people will steer their savings toward gold. Gold is viewed as a safe haven amidst financial and political turmoil. Consider the fact that the price of gold has just about tripled from 1998 to 2008. It hit the $1,000 per ounce benchmark in the first quarter of 2008. The price of gold nearly doubled across the next four years, reaching the $1,900 milestone. The U.S. dollar declined across this period of time as the country amassed massive trade and budget deficits while flooding the money supply.
The Heightened Demand for Gold
The amassing of wealth throughout emerging market economies across jolted demand for gold in the recent past. Plenty of these nations value gold for a wide range of purposes. In fact, this precious metal is a key component of cultures across the globe. Consider the population of India, where more gold is consumed than anywhere else on the planet. Indians use gold for jewellery, decorations, consumer supplies, medical supplies and so much more. In fact, the prime of the Indian wedding season (autumn) is the time of the year when global demand for gold almost always skyrockets. The Chinese consider gold bars as a means of saving and amassing wealth. The demand for this precious metal in China will only continue to grow as time progresses.
There is also a heightened demand for gold amongst investors. Investors are investing in physical gold as well as gold commodities. Consider the rapid emergence of SPDR Gold Trust as one of the United States’ largest exchange traded funds (ETFs) and one of the most prominent holders of gold bullion. This progress was made within less than half a decade of the organization’s inception. Furthermore, investors have begun to view gold as a means of diversifying portfolios. Gold is not strongly correlated to the stock market, making it an excellent means of hedging against market dips. This is especially true of physical gold that serves all sorts of practical purposes ranging from use in jewellery to medical devices, space shuttles, consumer products and beyond.
Gold is Also a Hedge Against Inflation
Invest in physical gold and you will have an excellent means of offsetting the devaluing of your savings when inflation occurs. The price of gold typically increases as the cost of living spikes. Gold prices have skyrocketed across the past half century as governments around the world have printed an obscene amount of money. Furthermore, the stock market tends to endure downward swings during periods of high inflation, making physical gold that much more of an attractive hedge.
Gold Even Shines Bright During Periods of Deflation
Deflation occurs when prices drop, economic activity decreases and money has more purchasing power. Though it has been nearly a century since global deflation has occurred, history shows the purchasing power of gold is greatly enhanced in such instances.
Gold maintains its value amidst geopolitical uncertainty when people seek a safe haven for their money. If tension develops on the world stage, interest in gold skyrockets and it almost always performs better than other investments. As an example, gold prices went up when Brexit occurred in 2016. The price of this precious metal typically increases the most when the public’s faith in government is low.
Gold’s Minimal Supply
The supply of global gold is up for debate. Some conspiracy theorists argue that human beings have found all or nearly all of the globe’s gold. Others are adamant that plenty more gold can be uncovered in areas throughout the world. The brunt of gold in the market since the 1990s stems from gold bullion sales sourced from global central banks’ vaults. These banks reduced their gold sales in 2008. The production of additional gold from mines has been on the decline since 2000. Prospective gold investors should know it takes upwards of five years to a full decade to prepare a new gold mine for production. It is clear that gold is quite difficult to pinpoint and extract from the planet. As the supply of gold dwindles, the price will only continue to rise.