Why is investing in gold so important?
Gold has become one of the most talked about assets this year amid the global economy approaching stagflation a la 1970s as inflation rises and economic activity falls. Not surprisingly, under these conditions, physical assets such as gold are popular. For millennia, the yellow metal has functioned as a reliable defense against uncertainty and inflation. Let's describe its important investment characteristics.
Inflation Hedge Instrument
If inflation rises, prices for physical assets such as gold rise ahead of stock asset returns. The inflation rate has been growing since the last lockdown in Western countries, introduced due to the pandemic. Gold has jumped nearly 40% in the past 3 years, according to the World Gold Council, a reaction to rising inflation.
Gold practically does not correlate with stocks, therefore, when there is a collapse in stock markets, the gold exchange rate, as a rule, rises. The yellow metal is a strategic asset, given what policies central banks have in place, as well as the presence of budget deficits in leading countries.
Many investors prefer to buy gold because of its long-term stability. Therefore, they purchase ingots, coins and even jewelry for the future, to create their own pension fund. The presence of gold in the portfolio provides the necessary level of protection for investors.
Any asset can be traded in such a way as to extract its short-term profits. Investors use gold as a speculative asset, predicting how the economy will behave, as well as how the supply and demand of precious metal will change. Investors can benefit from raising or lowering the rate, depending on their strategy.