Gold has always been a smart, long term investment for investors. It hasn’t been until the housing bubble crushed the stock market and volatility started to become a daily occurrence when owning gold has become a common thing. But smart investors own gold.
And for good reason. In fact, in this post, I highlight 6 concrete reasons why it makes sense to add gold to your portfolio. You can do this either by owning physical gold or by investing in gold related stocks and exchange traded funds.
But no matter what path you choose to add gold to your portfolio, know that you will be one of the many smart investors own gold.
6 Concrete Facts Why Smart Investors Own Gold
#1. Weak Value of US Dollar
The US Dollar is fiat currency, which means it is not backed by any physical asset. This wasn’t always the case. For decades, the US Dollar was backed by gold.
The fact that the US Dollar is not backed by gold is important to know. For example, look at the ballooning budget deficit that the United States continues to add to. This only puts more pressure on the value of the US Dollar.
As the value drops, it costs more money to buy goods needed for survival. By investing in gold, you have an asset that has a much more stable future and thus, is a better investment.
#2. Increased Demand
Basic economics teaches us that supply and demand work together. As demand rises, the price of the good increases. As more emerging markets evolve, they along with their citizens demand gold as it is seen as a symbol of wealth.
And as these economies continue to strengthen and more citizens move into the middle class, you can be sure that demand for gold will only continue to increase in the coming years.
#3. Production Constraints
It costs money to mine gold. Add to this the fact that it can easily take close to 10 years to get a new mine running smoothly and at full capacity and you can see why more companies are not mining for gold.
Not to mention there are many limits on how much can be mined. This is because gold mining can have a negative effect on the nearby environment. As a result, some countries now have strict regulations on gold mining.
As demand continues to increase for gold and a limited supply available, you can be certain the price of gold will rise in value.
The key to diversification is owning assets that are not correlated to one another. This is why the strongest diversified portfolios invest in both equities and bonds.
And smart investors own gold as well. This asset doesn’t rise when stock market rises and doesn’t fall when the market falls. It works on its own.
Of course, if the markets get extremely volatile towards the negative, you will see a spike in the price of gold, mainly as demand increases and it being a safe haven.
#5. Safe Haven
Speaking of safe havens, this is exactly what gold is. When global turmoil strikes, investors flock to gold. This is because everyone values gold. There is a solid demand for it and everyone sees the value of the commodity.
Just look at the price of gold whenever there is news about a terrorist attack or other geopolitical incident. The price of gold tends to rise. This is partly due to the fact that most countries are no longer on the gold standard as mentioned earlier.
With no physical asset backing up a nation’s currency, there is no safety in owning currency. Gold is a much safer investment.
#6. Hedge Inflation
As inflation rises, the cost of living increases as well. This is why investors pay such close attention to inflation and interest rates. Knowing that inflation is roughly 2%, they know they need to be earning at least 3% interest on their investments in order to stay ahead financially.
After all, if you are earning less interest than the current inflation rate, your purchasing power is decreasing and you are becoming poor.
Smart investors own gold because they know that the price of gold tends to rise along with inflation. This means that they will never be losing purchasing power due to inflation.
Overall, there are 6 concrete reasons why smart investors own gold. As smart of an investment gold is, as with any other investment, you should only be investing a portion of your portfolio in this commodity.
Not because it isn’t safe to invest in gold, but rather you have to build a diversified portfolio to weather the ups and downs of the stock market. Gold, like stocks, doesn’t trade perpetually higher. It fluctuates in value just like any investment.
Be smart and add a gold position to your portfolio and sit back knowing you made a smart investment.