Why should anyone consider investing their wealth in gold and not simply keep the money in the bank or real estate? Well, this precious metal has numerous advantages that people rarely ever talk about.
Historically, gold has been the world’s most reliable and consistent store of value. This partly explains why all central banks in the world and even the IMF always have some gold reserves in their accounts.
Shrewd investors have learned that whenever they want to shield their wealth from volatility, they can always trust gold.
So, is it a good idea to invest in gold as an individual? Does it make sense to convert your 401(k) into a Gold IRA for instance? Let us break this down for you.
Gold As an Investment Tool
Gold is a shiny orange-yellow metal that is also a chemical element symbolized by the letters Au. It is a really rare metal and that's because it is only formed when neutron stars collide which is something that rarely happens. Gold can also be formed when asteroids bombard and their particles are scattered to some parts of the earth.
As rare as it is, those who manage to lay their hands on this metal are seen as lucky. This has also created a perception of value around the metal (something that started around 500 BC).
To date, gold is found in various forms namely stamped coins, gold bars, and jewelry – all which are recognized for their value across all the four corners of the world.
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Why Gold Is at The Heart of The Global Economic Intrigues
It’s safe to say that the world of investments revolves around gold. Whenever the economy is struggling, investors traditionally rush into purchasing this precious metal. Therefore, recessions and periods of high inflation are typically characterized by steady rises in gold’s value. And therein lies a superb wealth growth opportunity.
Gold has time and again proven its ability to stand the test of time. And to put this into perspective here's a quick example:
In 1970, 1 ounce of gold cost $35. At that time, 35 bucks were enough to buy a nice business suit – and so was 1 ounce of gold, right?
Fast-forward to 2022 and you realize that you can no longer get a business suit for that kind of money! But, interestingly, you still can with your 1 ounce of gold which is currently valued at $1800.
Now, that’s the power of investing in precious metals over paper money. Paper money tends to lose value over time, while gold moves from strength to strength.
Top 6 Good Reasons to Invest in Gold
So, is it still a good idea to invest in gold today? Well, the answer is yes. And here are six reasons for that.
1. The World’s Central Banks Are Buying Gold Too
In 2021, the World Gold Council reported that central banks from across the world have built up their gold reserves by over 4,500 tons over the last decade. In fact, as of September 2021, the total gold reserves held by central banks were approximately 36,000 tons – more than 15% more than usual.
Why is this the case? Because central banks have discovered the important role played by this metal in protecting them from volatility.
Likewise, if you are looking to safeguard your long-term wealth, this is a wake-up call for you. The central banks certainly know something we don't!
2. Hedging Against Inflation
According to the Bureau of Labor Statistics (BLS), the US is experiencing its highest level of inflation since 1981. Yup, you read that right. Our inflation in March 2022 was at 8.5% - an acceleration never seen before (at least in recent years).
So, what has inflation got to do with gold? You might be wondering. Well, these two enjoy an interesting relationship – and that is, whenever inflation levels rise, the value of gold also follows suit.
In other words, if you want to at least retain your purchasing power even at a time when the prices of goods and services are going through the roof, you have got a safe haven in this precious metal.
3. Cushioning Against a Weakening Dollar
It’s no news – the dollar is weakening and will stick to that trend for the foreseeable future. And yet, the more the dollar dips in value, the more this precious metal gains. And that’s why central banks buy lots of it as a measure to cushion themselves against volatility.
Now, the problem with that is that as central banks rush to buy gold, it means that they sell their dollars. This increases the supply of dollars and without a corresponding rise in demand, the currency’s value plummets.
Things typically get even worse when folks who hold their wealth in foreign currency also rush in to take advantage of the weak dollar to buy gold.
Long story short, with financial analysts predicting further dips in the dollar’s value, this is the time to consider protecting your wealth from volatility by going for gold.
4. Easy to Buy/Sell
With the advent of eCommerce, buying and selling gold has become a lot easier. All you need to do is partner up with a reliable gold IRA company and they’ll supply you with all kinds of bars and coins.
Besides availability, this precious metal is always in demand and, therefore, you never have to worry about liquidating your assets whenever necessary. And even if you do not want to sell your gold, you can pledge it and take a loan from financial institutions against it.
In terms of liquidity, we can say that gold has higher liquidity than real estate. That's because it can take a long time to dispose of a house, unlike gold.
5. Minimal Maintenance Required
Why invest in gold? Well, like all other metals, gold is not perishable meaning you can keep it intact for many years to come with minimal maintenance involved. Talking about maintenance, can you imagine if you invested your money in property?
When you purchase real-estate property, you have to invest a great deal of cash in maintenance to maintain its value. This cost can add up fast, over time. That’s, however, not the case with gold. In fact, all you need to do is make use of your safe at home to provide it with safe storage.
6. A Good Way to Diversify Long-term Assets
Real estate and stocks are good ways to grow and safeguard wealth in the long term. But despite that being the case, they equally carry a lot of risks and that's why you should never put all your savings into them.
It’s always a good idea to balance your investment portfolio by adding some physical gold to it. That’s especially important considering the fact that the value of gold is unlikely to plummet dramatically as compared to that of the stocks.
As such, having some of your wealth in precious metals can introduce an aspect of stability to the overall equation. This can come in handy in the long run.
Reasons Against Investing in Gold
Like with any other area of life, there are reasons for and against investing in gold. Some of the good ones on why (and when) you should steer clear of this metal include:
1. Carries Risks & Rewards
Although gold is not a high-risk investment, it is worth noting that its value does fluctuate from time to time. So, with poor timing, you can end up selling it at a lower price than you bought it.
Luckily, with good financial advice, you can protect yourself against that e.g., by taking a loan against your gold and waiting for the market conditions to improve before exiting.
2. The Risk of Fake Gold
Quite frankly, the risk of purchasing fake gold is quite low provided you purchase it from well-known mints and LBMA-listed refineries. However, just because the risk is low does not mean that it doesn’t exist.
Gold frauds are as old as the history of this precious metal. And so, it is always important to only work with legitimate vendors at all times.
As a cardinal rule, always remember that if the deal is too good – it probably is.
3. Storage Fees
Storing this precious metal can prove difficult as it is highly vulnerable to theft. This, therefore, creates an extra need to store it in insured vaults. Over time, the cost of storage can stack up and provide you with a significant financial burden.
Luckily, as long as the metal keeps gaining value, you can sell it for some good cash and recover any such costs.
Gold is a fantastic precious metal to bank on. If anything, the world’s most trusted financial institutions i.e., central banks count on it for protection against market volatility.
You can hardly ever go wrong with gold – but even then, it is always wise to remember that even the finest bar of gold in the world has its fair share of flaws (from an investment perspective). As such, it's always wise to approach matters gold investment with an open mind and to be calculative while at it.
If done right, an investment in this precious metal can easily transform your financial fortunes for the better.
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