Even now, to most people gold is analogous to money, wealth and financial security. And as a reaction to the unpredictability of the financial markets and the global economy, they resort to buying or investing in gold. Here are their reasons.
As a Hedge Against Inflation and Market Fluctuation
The current financial markets are so volatile – prices on stock and bond markets, and commodity and currency exchanges fluctuate like crazy even within a trading day and could change dramatically at a blink of an eye, making for such a capricious market condition. Prices of precious metals such as gold also fluctuate, the most recent of which is a drop in price after nearly approaching a 6-month high of more than $1,380 per ounce on March 18 this year. However, because gold’s fundamentals and value remain more or less stable over-time said drop in price will eventually correct itself. This makes gold a dependable long-term or even a medium term investment that can serve as a cushion against the disastrous effect of cataclysmic market movements such as a stock market crash or a currency devaluation.
The value or purchasing power of paper money devaluates, but the value of a gold coin or a gold bullion will remain the same. The price of gold is not equated to its value. The price is the result of the law of supply and demand, but gold has an inherent value that is fixed.
For its Liquidity
Gold is one asset with a very quick liquidity, meaning it can be easily converted into cash. There is always a market for gold anywhere else in the world.
To Diversify an Investment Portfolio
Diversifying one’s portfolio is the best way to balance an investment. Investing in gold is a way to diversify and reduce the overall risk of an investment portfolio since price of gold usually changes in reverse to the prices in the currency or commodities exchanges and the stock and bonds markets.
Commercially, gold can be found in several forms – in bullion, bars, coins, jewelries or in government gold certificates and stock certificates of gold mining companies. An investor can further diversify its portfolio by buying gold in its various forms – they can own gold by buying gold jewelry, bullion or coins, buy stocks in gold producing and mining companies, invest in gold futures, gold ETF and other financial instruments.
Demand for Gold is High
Other than as an investment instrument, gold too has a lot of uses making it a metal of a very high demand globally. Gold is used in the production of jewelry as well as other industrial products such as electronics, a steady demand for gold to support these industries help stabilize the price of gold in the long-term.
Another factor that boosts the demand for gold is China’s gold buying spree that makes it the top gold consumer ahead of India, the traditional number one consumer of the metal. The demand for gold by China is expected to rise further because of the more relaxed import rules of the Chinese government.