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Gold is one of the most valuable commodities traded in the international markets today, but even more interesting is the fact that strong value has been attached to this precious metal for thousands of years. Many societies have upheld value status for gold over the years, so much that there is a stage in history where countries used the gold standard where currency value was linked to gold.
Fast forward to today, and many things have changed regarding money, including the adoption of the existing fiat money-based standard. However, one peculiar thing about gold, even during the age of fiat money, is that it still holds its value quite well. That ability to retain value is one reason it is one of the most traded commodities in the world. Here are some of the reasons why you should consider investing in gold in 2021. (Source: Gold.org)
Gold is ideal as a long-term way of storing wealth
Fiat currencies experience a lot of volatility due to unforeseen events such as a global pandemic which may cause economic instability. Gold, on the other hand, has demonstrated relative stability over the years. If you are looking for the ideal way to store wealth such that it will not be affected in an economic downturn or other events that may cause wealth erosion, then gold is the best bet.
Weathering inflation
Saving your money in the bank means that it will be secure but remember that inflation is real, especially in these uncertain times. The value of your money will decrease over time due to the rising cost of living. Products or services that can be bought with one dollar today will require more than a dollar in the future, meaning you will have to spend more, and your money will not have as much mileage.
Interestingly, gold seems to be immune from inflation. Its historic performance reveals that it tends to gain in value as inflation increases, thus a directly proportional relationship between the two. This makes gold the ideal investment against inflation for those that want to hoard their wealth.
Weakening currency
Poor economic performance and market uncertainties tend to hurt a currency’s performance. The U.S dollar is a great example of a currency facing a lot of pressure due to various factors, including trade deficits, budgetary constraints, and too much supply in the market. Meanwhile, gold prices have been rising even in rough economic times.
A weaker currency means your money’s worth will start eroding, which is why many smart investors buy gold in times of economic uncertainty. For example, gold prices saw a significant improvement as well as demand in 2020 as demand for precious metals increased. On the other hand, the pandemic-induced economic downturn harmed major economies, subsequently weakening their currencies.
Geopolitical instability
Geopolitical uncertainties are bad for trade and may subsequently take a toll on an economy, thereby also affecting a country’s currency. Such has been the case in the last 2 years in Europe due to Brexit, causing economic uncertainties in Europe. These uncertainties had a huge negative impact on the Euro and the Sterling pound.
Across the pond, the trade tensions between the U.S and China affected the currencies of both countries. China allegedly attempted to weaken its currency at the time so that exports would fetch more dollars. The European geopolitical event and the U.S-China trade war took place at roughly the same period, thus contributing to gold price rallies. Many people who invested in gold during that time we’re able to avoid losing money as currency value deteriorated.
Limited gold supply
One of the main reasons for gold’s impressive ability to hold value over time is that it is a rare metal. Global central banks sold most of the gold reserves in their vaults in the 1990s, but they slowed down gold sales in 2008. Supply from goldmines also experienced a significant decline from the year 2000, leading to higher demand than available gold, which subsequently led to higher and more stable gold prices.
Higher demand for gold in the consumer segment
More use cases are a great way to maintain the value of a product. Gold has interesting electrical conductivity properties, which is why it is used in electronics manufacturing. However, the bulk of gold demand in the consumer segment is courtesy of its use in making jewelry, another common trend for thousands of years.
Many cultures worldwide incorporate gold into their traditions, especially for special events such as marriage. Most of their ornaments contain gold, thus contributing to the demand for precious metals. Investors also play a huge role in the demand for gold ever since incorporated as an investment class.
Key points to note about buying gold
Gold prices are relatively stable compared to fiat currency prices. This does not mean that the precious metal does not gain or lose value, but that you should not expect sharp price movements on gold. These characteristics make gold less attractive as a long-term investment that can be used to maximize profit potential. Instead, buying gold makes more sense for those who wish to avoid the effects of inflation or economic decline.
It makes more sense to purchase gold during a crisis or inflation as a way of bypassing the potential wealth corrosion that may result from such events. Note that many other investment options may provide better returns than what gold can offer. Those looking to invest in gold should consider having a diverse portfolio rather than investing all or most of their money in the precious metal.
Where to buy gold
Purchasing physical gold means you have to ensure ample security measures. There are many scam sellers out there that sell fake gold. Consider going through a reputable seller to avoid scams and subscribe to a custodial service for safe storage. Some brokers will allow you to buy a specific gold value without physically holding it, making the ownership and selling process much easier. (Source: Investopedia).
