Last Updated on Mar 13, 2020 by James W
There are many different ways to invest in gold, from exchange-traded funds to gold stocks to physically purchasing it. Despite its entrenched existence in the markets, however, the question of the metals continued relevance and usefulness has divided investors for the last several decades. Some suggest that it’s little more than a relic of the past; others, that it is a unique and necessary part of any investor’s portfolio.
If we were to choose a side, we’d have to agree with the latter statement. Here’s why…
The Importance of Gold in the Modern Economy
Gold once played the important role of backing most worldwide currencies, but although this function is now obsolete, it still has an important part to play on the global stage. This point can be very easily confirmed simply by taking a quick glance at the reserve balance sheets of central banks and other financial institutions, such as the International Monetary Fund. Between them, these important organisations hold around one-fifth of the world’s above ground supply of the metal, and there is a constant drive to add to these reserves.
The reason for their attachment to the base metal is simple: gold preserves wealth, and has successfully done so for thousands of generations. This is particularly evident when you consider both what $35, and its equivalent value in the 1970s of one bar of gold, could have bought you at that time compared to today. The value of the gold bar has held up well, whereas the value of the $35 has massively decreased in real terms thanks to inflation.
The metal has another important role as a safe haven. Irrespective of what’s happening in the world, gold traditionally holds its value well. From tensions in the Middle East to global economic uncertainty, world politics and pricing have little effect on its worth. As a result, many investors turn to it during times of collapse and turmoil, following a traditional pattern to protect their wealth and safeguard their portfolios.
Why Gold Should Be Included in Your Portfolio
The sum of these roles makes gold an ideal instrument for diversification. Regardless of what is happening in the markets or the wider world, it makes the perfect buffer from the dangers of inflation, a declining US dollar, or falling share prices. It has served this safe haven purpose for so long now that its position as an oasis from the turbulence of the world is entrenched into the psyche of every investor, eternally safeguarding the metal from the vagaries of the modern markets.
If you’re looking to diversify your portfolio, there really is no investment better suited to your purposes.