Is Buying Gold an Actually Sound Investment Strategy?
Gold, that age old treasure. People are still buying gold and locking the bars away for safety. Gold is no longer something the rich hoarded. Even the average retiree nowadays has gold on his or her investment portfolio. Early investors and savers are encouraged to add gold to their portfolios. All this enthusiasm for gold drives many people to buy, and also leaves many others wondering why the hype.
Why is Gold Still Valuable?
Considering that it’s the twenty first century, you may wonder why gold seems still appealing to many. Isn’t cash the way to barter nowadays? The value of gold, however, is calculated slightly different from the value of cash. As a precious metal, it has an intrinsic value. Gold is used in things like jewelry as well as highly in-demand electronics. On the other hand, gold has another value priced against currency. Financiers calculate the value of gold inversely proportional to the value of the dollar. Meaning, when the price of the U.S. dollar goes down, the value of gold goes up.
It may seem at first mostly unwise to invest in something that is not valuable cash wise. You only realize the importance of gold when the price of currency seriously goes down. This happens during economic downturns, political upheavals and generally in times of economic uncertainty. The 2008 recession and the Brexit vote’s effect on the pound are stark examples. When currency value took a plunge, value of gold went up.
Volatility of Gold Prices
Because of the way gold is valued, gold prices have a tendency to fluctuate madly. Gold prices today may not entirely reflect what the prices will be like tomorrow. If you look at the price history of gold for the past two or three hundred years, the pattern largely remains the same. The thing about gold is that investors don’t value it like stock. If you have a stock that got valued dramatically differently each day, going up and down in value like the heart rate on an ECG machine, then that stock would be high risk and not worth it. Gold is not like that. Investors don’t buy gold to get rich in a month or two. Gold adds to a person’s overall wealth, and hedges against potential future losses.
Buying Gold is Not an Investment at All
In light of the above, it can be said that buying gold is not actually a sound investment strategy. Rather, it’s a failsafe. Gold will protect your wealth in times of serious economic problems. For example, take Brexit. British retirees saw chunks of their lifelong savings being wiped off thanks to the currency devaluation Brexit brought forth. On the other hand, British retirees with gold on their portfolios kept their wealth intact, or in some cases increased overall wealth. While the pound crashed following Brexit, gold prices rose. Those with gold survived the ordeal without incurring devastating losses.
So, don’t think of gold as an investment that will make you rich. Having gold in your investment portfolio or IRA will protect your wealth from the uncertainties that no one can predict in the future.