Protect Portfolio with Gold

Article written by Sherin Dev; Join my Twitter or Facebook

powerofgold-8835603Do you feel insecure about your investment portfolio? Worries more about market fluctuations, recessions, inflation, losing currency values etc and looking for some investment that protect your money against all these causes, then you should protect your portfolio with gold by allocating 10 to 15% of capital in it.

Diversify and Protect Portfolio with Gold
It is proven that gold allocation plays perfect role to protect investment portfolio by guaranteeing the savings and increasing the level of investment. How gold gains such capacity to protect our money. It is a worthwhile hedge against negative events such as stock-market downturns, strong inflation or a weakening currency. Demand for gold moves up in uncertain times because investors see it as a haven. Here are some valid reasons to understand the real power of gold.

Gold Never Loses Value

If you have gold in hand, you are safe. Never mind whether it is a recession, market down turn, inflation, deflation or currency value fluctuations. Your gold will be intact in value, anywhere in the world, and would fetch you financial happiness. Increasing gold prices during last recession was the best example on how world rely on it to protect money. This is why almost all the countries in the world increasing its gold reserves to protect their economy. Gold has maintained its value in terms of real purchasing power in the long run and is thus particularly suited to form part of central banks’ reserves. In contrast, paper currencies always lose value in the long run and often in the short term as well.

Gold Protects Against Inflation

Gold is the only investment that protects our self from inflation or deflation related causes. Whether it is inflation or not, gold’s value will be adjusted according to and money invested in gold ensures same or more value.“The value of gold, in terms of the real goods and services that it can buy, has remained largely stable for many years. In 1900, the gold price was $20.67/oz, which equates to about $503/oz in today’s prices. In the five years to end-December 2008, the price of gold averaged around $606. So the real price of gold has endured a century characterized by sweeping change and repeated geopolitical shocks and more than retained its purchasing power. In contrast, the real value of most currencies has generally declined.”Market cycles come and go. Over the long term, through both inflationary and deflationary periods, gold has consistently maintained its purchasing power.

Helps to Diversify Portfolio

Asset allocation is an important aspect of any investment strategy. By balancing asset classes of different correlations, investors hope to maximize returns and minimize risk. Gold offers enhanced diversification opportunities relative to many alternative assets. Alternative assets and traditional diversifiers often fail during times of market stress or instability, even a small allocation to gold may significantly improve the consistency of portfolio performance during both stable and unstable financial periods.In the short run, gold can deviate from its long-run inflation-hedge price and can offer opportunities for impressive returns.

Gold Is Risk Free

Financial instruments generally carry three major risks: Credit, Liquidity and Market. Credit risk is where a debtor will not pay. Liquidity risk causes the seller not able to find a buyer and the item remains never sold. Market risk causes the prices would fall by changing market conditions.Gold is unique in that it does not carry a credit risk. Unlike a currency, the value of gold cannot be affected by the economic policies or undermined by inflation in that country. Gold market is deep and liquid, as demonstrated by the fact that gold can be traded at narrower spreads and more rapidly than many competing diversifiers or even mainstream investments.Gold is of course subject to market risk, as is clear from the experience of the 1980s when the gold price declined sharply. But many of the downside risks associated with the gold price is very different to the risks associated with other assets, a factor which enhances gold’s attractiveness as a portfolio diversifier.

Gold for Emergency

Gold works as a best option to meet emergencies. Emergencies always required liquid money. Owning gold is thus an option against an unknown future. Gold is liquid and is universally acceptable as a means of payment. It can also serve as collateral for borrowing.

Gold as Source of Income

Gold is sometimes described as a non income-earning asset. This is untrue. Gold can also be traded to generate profits. There may be an “opportunity cost” of holding gold but, in a world of low interest rates, this is less than is often thought. The other advantages of gold may well offset any such costs.

Invest Physically or Virtually

Investors have many options to purchase gold as physical or virtual. Physical options to purchase gold are jewellery and ornaments, certifed gold bars, gold coins etc.. Virtual options including Gold Exchange Traded Funds (ETF), purchasing stocks of Mining companies, gold certificates, gold futures and gold oriented mutual funds and fund of funds.


If you want to protect yourself against inflation, deflation, stock market weakness, economic slowdowns, recessions and potential currency problems, in other words, if you want to hedge financial uncertainties, there is only one portfolio item that will serve you in all seasons and under most circumstances – Gold.

Further References:

1. Wikipedia Gold as an investment2. World Gold Council