Investing in Gold in an Uncertain Economy

People invest in gold for many reasons, including as a method of diversification against stock market fluctuations. In fact, for centuries gold has attracted investors as a means of protecting their wealth in troubled or uncertain times. While this appeal is as compelling for many of today’s investors, there are a number of additional good reasons to consider adding gold to your portfolio.

Gold differs from other precious metals because the demand for those is driven mainly from their industrial uses. Gold, on the other hand, is produced primarily for accumulation rather than consumption. Its value does not arise from its usefulness but as a store of value. In this way, gold is like money.

In uncertain times, many investors look to protect their capital by moving into assets like gold that are considered to be safer stores of value. Investing in gold protects against default risk as it is one of the few financial assets that do not rely on the issuer’s promise to pay.

As some investors see a relationship between gold prices and the value of the U.S. Dollar, they leverage ownership in gold as a means of betting on the future performance of the dollar. Others take physical ownership of gold as insurance against economic collapse or the failure of the monetary system.

In times of conflict, gold has proven to remain relatively stable, performing particularly well in war time. In fact, during both world wars, the price level for gold demonstrated this relative stability.

Investors should be careful about investing in gold as, unlike stocks, you don’t have the option of investing just a small amount. And while gold is likely to hold it value over the long-term, in the short-term it can be very volatile. When considering gold investment, the investor should conduct adequate research and develop a strong knowledge of the market. They then need to determine how much to allocate to their portfolio.

Some of the best ways to invest in gold include direct ownership (e.g. gold bullion), gold exchange-traded funds, gold mutual funds, and gold options and futures.

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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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