The price of gold has fallen from the record USD$2,050 last August. But is it going to have a rebound in 2021? Also, trading in this precious metal can provide you with plenty of chances to grow your investment. However, investing in this asset has some drawbacks.
Many people want to know why they should invest in gold bars, how to invest in this precious metal, and whether or not it’s a good investment in 2021. Read more to find out!
Why Investing In Gold Makes Sense
Here are some of the reasons why you should invest in gold:
- Preserving wealth
Gold has long been trusted by countless investors who want to preserve their wealth. For example, there’s a huge difference between keeping USD$70 worth of gold and owning a USD$70 note in the 1980s. If you owned the former, its value has increased significantly compared to the original investment. But the latter has decreased due to inflation and it can’t be used to buy as much as it could back in the 80s.
Nowadays, investing in a gold individual retirement account (IRA) is also gaining more popularity since it’s a good way to protect retirement funds from inflation and financial crises.
The price of gold has appreciated at the same time as inflation rises and the depreciating value of the dollar. So, investors would want to purchase gold to serve as a hedging asset when they start to see their losses increase.
This further strengthens the view that gold keeps or even grows its value when the dollar loses its strength.
- Protecting assets
Compared to other currencies, the precious metal’s price isn’t heavily impacted by adjustments in interest rates. It can’t also be printed to keep its supply and demand in check. Also, gold is a rare asset that managed to keep its price over several years. Economic crises, like the 2008 Great Recession, have lent to its credence as an effective insurance policy.
- Diversify your portfolio
You can achieve a balanced portfolio if you have diversified assets, such as gold, since they’re usually insulated from the movements of the stock market. A diverse portfolio will also help reduce your investment’s risk and volatility.
- Opportunities in gold stocks
Gold stocks can keep their lucrativeness even though the price of gold is low. Also, several gold mining companies give out strong dividends that could make it very appealing as an option for investment instead of gold.
Before investing in gold, you should read about the current market trends to maximize your profits. It’s a good thing that many websites provide you with news about gold and the wider market as a whole. But if you’re still not convinced of gold’s importance in your portfolio, you can read reports made by financial websites and analysts or here.
How To Invest In Gold
Compared to other commodities in the market, getting started with gold investments can be relatively easy. You can also choose between several gold investment products that are less volatile as opposed to oil and agricultural products trading.
- Physical gold or bullion: This is one of the most popular options for gold investors. You can purchase this through banks, brokerage firms, jewelers, and precious metals dealers online or in person.
But physical gold can’t be stored as easily as other assets as it can occupy plenty of space. It’s also more prone to theft or loss.
- Gold mining companies: These are more practical in terms of space compared to physical gold, but they’re riskier since you’re also banking on the company’s success. Still, you can potentially make a profit from your investment if you go this route.
- Exchange-traded funds: Gold ETFs are best for people who want less risk and don’t want to deal with storage issues. They’re also more liquid, and the initial investment is more affordable as opposed to physical gold and mining company shares.
The Pandemic And The Value Of Gold
After the effects of the pandemic felt by everyone in the world, the value of gold has increased its practicality as a hedge to the major stock indices, like the S&P 500. As the stock market fell, gold’s value increased to record highs that’s never seen since the early 2010s.
Also, several analysts have forecasted that there will be gains in gold prices in the next few months. It could be argued that most investors are using gold to protect their assets and to lessen risks brought by the volatility of the financial and stock markets.
As mentioned earlier, having gold is essential in making your portfolio balanced as its value still increases even through market crashes and economic crises. It’s also one of the assets with the highest rate of liquidity in the commodities market.
So, if you’ve invested USD$800 back in the 80s, it’s likely that its value has increased by over 500% today. But if you know a thing or two about the financial market, you’ll realize that nothing is guaranteed and the performance of gold in the past isn’t indicative of its future value. Still, the precious metal’s historically strong performance is better than an asset that doesn’t have this stellar record.