Eight Important Benefits of Investing In Gold

Have you ever thought about investing in gold? While investors are dazzled by stocks and shares, this commodity is believed to outperform them in volatile times.

Gold is prominent for its low volatility, high liquidity, and stability. With supply becoming scarcer, the demand for this precious metal is incredibly strong in markets like China and India.

The historical value of this commodity makes it an appealing investment. Investors are tempted to add it to their portfolios, as it’s known to be an excellent diversifier.

Have a look at the eight most important benefits of considering such an investment.

Low volatility

One of the leading benefits of making an investment in gold is its low volatility. The majority of investors opt for commodities instead of stocks, as the former has a minimal correlation with the latter. Consequently, the prices of stocks and commodities don’t move in the same direction. Gold and other commodities represent an inflation hedge when prices soar.

Unlike the rest of the commodities, which might show high volatility, the price of gold is generally stable, given the demand for this precious metal is relatively constant. For instance, in the course of economic downturns, the demand remains almost identical due to the use of this metal for jewelry, accounting for fifty percent of its overall use. Find out more about gold as an investment.

Inflation hedge

Another reason why investors are motivated to invest in gold is the role it takes as an inflation hedge. Whenever inflation rises, the values of major currencies tend to depreciate. Nevertheless, inflation has proven to go in favor of gold throughout history as its price increases.

While inflation forces the cost of living to go up, the value of this precious metal suffers no blows. This, however, isn’t the case with cash savings, which are eaten away by inflation. Consequently, no other asset acquires the role of such a good hedge in times of inflation, especially over a longer period.

A tangible asset

Another benefit of investing in gold is the tangibility of this asset, which provides investors with a feeling of safety. In fact, this commodity is among the rare tangible assets available to investors. Physical gold can be held in one’s hands and cannot be destroyed over time.

Probably the reason why investors are attracted by this tangible asset is the inability to be erased or hacked. Other forms of investment like bank and brokerage accounts are often exposed to cyberattacks and become targets of identity thieves. Even though we live in a digital world, it’s a wise idea for investors to keep some of their wealth in a tangible form to avoid risk. Keep in mind that digitally stored assets are more susceptible to misuse and hacking.

A portfolio diversifier

What makes this commodity highly appealing to investors is the opportunity it provides for portfolio diversification. It’s considered an excellent portfolio diversifier because of the low or even negative correlation it has with other assets. If planning to invest in gold, you should check out the top gold investment companies of 2021 before starting your investment journey. As mentioned before, when equities are exposed to stress, this asset remains stable.

For instance, whenever shares drop rapidly in value, this precious metal serves as a protector of the entire portfolio. Microeconomic and macroeconomic factors that affect the value of other assets have almost no influence on the value of gold. Hence, by adding this asset to your portfolio, you’ll automatically reduce volatility risk.

Stable in times of crisis

Perhaps the most incredible benefit of investing in this commodity is the stability it provides in times of crisis, such as economic, geopolitical, or monetary crises. Whenever a crisis takes place, investors are worried sick about the stability of the stock market. As a result, fear encourages them to invest in more tangible assets. It’s no wonder the price of gold soars during such periods, given the sudden increase in demand.

Let’s take the 1970s as an example, especially the second half. This period imposed plenty of troubles like an increase in interest rates, unemployment, and inflation rates. There were recessions at the start and end of this period, which put commodities to the test. Nevertheless, the response of gold to all these events was positive by having its price rocket from $103.5/oz. to $850/oz.

High liquidity

Another reason to consider an investment in this commodity is the ability of the asset to provide liquidity. Whenever you need to liquidate this commodity, the process can be performed much faster than in other assets, such as real estate. The amount of redemption depends on multiple factors like denomination, the purity of the metal, its market price, etc.

In contrast, when selling stocks, the procedure is usually performed during three business days. This period is necessary for settlement to take place and cash to be transferred to your bank account. Additionally, when you desperately need funds, you are allowed to take loans against gold and obtain the funds you need.

Scarce supply

The price of gold remains high because of the scarce supply. Although the planet has copious amounts of this precious metal, the cost of mining is constantly rising. Also, the budgets for exploration are gradually shrinking, leading to the discovery of fewer mines in comparison to the past.

Furthermore, the phases of exploration and development might last a decade before this metal is eventually mined. Consequently, the challenges related to mining make the supply limited and keep the price constantly high.

A rising jewelry demand

Contrary to the scarce supply, the demand for gold jewelry is on the rise, particularly in India and China. People in these countries have a habit of using such jewelry during the gift-giving season. It’s predicted that the demand for jewelry will continue to rise in the years to come.

To sum up

This commodity provides stability in times of economic and geopolitical crisis.

No other asset offers such low volatility!