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6 Reasons Why a Savvy Investor Must Own Gold

6 Reasons Why a Savvy Investor Must Own Gold

By    |   Thursday, 07 September 2017 12:59 PM

The value of gold responds to reasons and events that could trigger a rise or decline in stocks, bonds, and investment funds.

Gold may have price changes, but over the long term it retains its worth and has done so for thousands of years.

You can buy physical gold, such as bullion, coins, and even jewelry or purchase gold mining stocks, exchange-traded funds (ETFs), and certificates.

Some investors prefer gold stocks or funds to avoid higher dealer costs or storage of the precious metals.

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Other investors buy physical gold to protect against downturns in the stock or paper gold market, feeling secure by storing the gold in the location of their choice.

Whichever route investors decide to take, the following are six reasons to own gold:

1. Hedge against inflation and declining U.S. dollar — Price inflation lowers the value of currency and purchasing power while gold prices rise. During the five years of the highest inflationary periods for the U.S., the year after World War II and during the late 1970s, the Dow Jones Industrial Average saw a real return of minus 12 percent while gold soared to 130 percent, according to Schwab. Likewise, gold prices fall with a strong U.S. dollar and rise when the currency weakens.

2. Speculative investing — Gold’s price fluctuations can even turn into a hefty profit for speculators. While holding onto gold for security, investors have taken advantage of surges in gold prices during uncertain economic times. Prices skyrocketed nearly 600 percent in the decade following 2001, Schwab notes. Rallies might be shorter, but speculators can profit greatly at the right time.

3. Preserving wealth — An ounce of gold will always buy you a good suit, the old saying goes. When prices of gold rise dramatically, it could even buy you three or four good suits. An ounce of gold was worth about $35 in the early 1970s, Investopedia explains. The cash would be a fragment compared to an ounce of gold today because of inflationary forces. Gold prices face volatility in the short term while maintaining value for the long term.

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4. Insurance — Gold is considered a safe investment for financial protection. You spend money for car or homeowner’s insurance and hope you’ll never need it, but it’s there in case of misfortune. Although the price of gold may fluctuate, it’s often a valuable resource during economic downturns. Domestic and global upheavals or tensions cause investors to buy gold as a safe haven to protect their wealth.

5. Wary of government planning and forecasting — You don’t have to be a conspiracy theorist. Just knowing recent history tells you the government can’t “maintain the economy on a steady course and manage the affairs of man in a fair and orderly manner," Richard Lehmann points out in Forbes. Gold provides protection against false projections and uncertainty.

6. Diversified component — At the very least, gold brings diversification to a financial portfolio. Investors may disagree on how much to include along with stocks, bonds, and mutual funds. Many advisors may say gold should make up about 10 percent of a portfolio. Other investors recommend a higher percentage, especially if they are concerned about a decline in markets.

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The value of gold responds to reasons and events that could trigger a rise or decline in stocks, bonds, and investment funds.
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Thursday, 07 September 2017 12:59 PM
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