Do you know, whenever huge stock market correction or a heavy economic recessions to put public panic over lose of investments, gold prices start shoot up. Correction or economic recessions are the best supportive factors for this behavior. What is the secret behind it? To get the answer, we should know the real power of gold. From the ancient era, gold is the only metal maintaining its superior position intact, in the sense of price and demand, among public regardless of Geo locations, religions or any. There are no such metal or investments or consumer items are able to claim this status. That is the power of gold, the most wanted precious metal today.
Gold has Superior Ability to Hedge against Inflation
All of we know that inflation happening by increase in the money supply and it raise the prices. Gold and silver is money and a store of value. It is the “Currency of last resort” as Alan Greenspan has stated many times through the years. Gold doesn’t pay interest, dividends, doesn’t restate earnings, and has no lawyers, accountants, CEOs or CFOs lying to you on television. Gold doesn’t ask for bailouts, doesn’t go back and cannot cook its books. Gold can’t be debased or printed at the will of a company or government and holds its purchasing power.
Gold sits there as a store of value is labor intensive, and a one ounce coin will not split into a bunch of half ounce coins at the direction of the “Pin Striped Bandits” on Wall Street. Also Gold is the ONLY asset class in the last ten years to increase in value and retain every dollar of its purchasing power.The earth’s crust only yields so much of it. It has value due to the fact that its rare and one cannot reproduce it without the hard work and real labor it takes to obtain new material from the ground. This is why its money. It represents a store of the value of the real working man. The labor and costs required to obtain an ounce of gold is the same as the labor, materials and costs to produce a fine handmade suit of clothes. This value has not changed in 5000 years. Gold and silver were money and represented a store of value long before Charles Dow ever invented that exchange.
It has value for all these reasons, but the most important one is the fact that it cannot be reproduced for a low cost.
More over the above, Gold is the ONLY asset class in the last ten years to increase in value and retain every dollar of its purchasing power. As an international medium, it’s liquidity are superb compare with any other investments, asset class. People can debate all they want about gold and silver but the fact is where everyone’s stocks, bonds, real estate etc. have declined in value, only physical gold and silver are up.From the ancient period, gold considered as a best monitory asset than ordinary commodity item. It’s amazing ability to act as a powerful hedge against inflation, made gold a pet of central banks across the world. They are rapidly increasing their gold reserve where dollar was previously enjoying this position. Losing value of dollar forcing central banks to increase gold reserves as a parallel solution to hedge against inflation by identifying its value, power and capability
There are lots of factors around influencing the price of gold. Purchase and sale of gold by central banks, supply shortages due to faster growth in demand, lose of dollar value, interest rates and increasing domestic demands are some them.
For investors various methods available to invests in gold. From buying physical gold to investing in gold mutual funds are some of those available options. Investments in gold, in any form, can’t consider as an investment for higher returns. Instead, gold highly considered as a ‘safe investment’ asset. Inclusion of gold as an asset class in the overall portfolio brings the advantages of diversification and provides higher stability.
There are several methods to accumulate gold to the portfolio. Here are some of them to choose depends on investors:
1. Physical Form – In the form of Ornaments, Coins, Biscuits, Bars etc..
2. Paper Form – Gold Exchange Traded Funds or Gold ETF
3. Other – Gold Commodities and Futures
4. Mutual funds – There are number of mutual funds available in the market known as gold mutual funds. Before investing to these funds, one should know that these funds are not investing on gold directly. But, invest in gold companies or work as a fund of funds by investing on other funds, local or international, who invested on gold and mining companies. This is comparatively a bad option.
Dear Readers, In the beginning of this article, I have said the gold price shoots up when market corrections or recessions happening. What do you think about that? Do you feel investors looks to invest heavily on gold when such situations arises and is that the reason gold prices shooting up at the time of corrections or recessions?
Special thanks to: alcan52
Picture Credit: motoyen