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Why is Gold an Investor Haven?
Gold has long been known as a safe haven and a popular asset among traders in volatile economies. Providing a safety net across a range of trading portfolios, gold is the go-to investment for a variety of reasons.
The precious metal was originally used for shrines, jewellery and household items and was considered a valuable commodity, even before being used as a currency. Gold’s rarity and unique properties made this a sought-after asset with mining first undertaken by the Greeks.
Gold has managed to retain its value into the 21st century and is still considered one of the highest value metals across the world. But what are the reasons for this?
Gold Performs Well When Markets Are Down
During bear markets, the value of gold rises significantly. Because traders tend to rush to the most valuable asset during volatile times, impacting demand, the price increases. Even when markets and indices around the world drop, gold typically bucks the trend and enjoys a strong market position, driving its reputation as a safe bet among investors.
Hedge Against Inflation
Fiat currencies are always at risk of being devalued due to excessive money printing and inflation. But, because gold isn’t tied to a currency, it’s value tends to remain stable, even in times of economic uncertainty.
Even when the US dollar value decreases, gold remains a worthwhile investment, providing a hedge against monetary policies.
Portfolio Diversification
Investors are always advised to diversify their portfolio to reduce risk. This means choosing a variety of ways to trade such as commodities, forex and indices. It’s also a good idea to choose multiple assets within these categories too. So, if you’re interested in commodity trading, try and spread your capital across multiple assets.
Gold provides an ideal additional asset to help protect from losses and can be especially useful if you have a wealth of other investments such as stocks.
Global Demand
There are a variety of uses for the precious metal and it’s utilised worldwide across many industries such as healthcare, technology and electronics and aerospace. Its high liquidity means it’s in demand in many countries and easy to invest in.
What Are the Downsides of Investing in Gold?
While gold is, without a doubt, a safe investment and can provide security when some other assets are suffering from volatility, there are some risks to be aware of. Many people only choose to invest in the metal when market conditions are weak and stock markets crash. This can mean paying a premium for gold during bear markets.
Its reputation also means that many other worthwhile assets are overlooked in favour of this popular commodity when there is often value to be had from investing in other assets.
The best way to benefit from gold investments is by allocating a percentage of your capital to the metal while spreading the rest over multiple other assets.
