From jewelry to home décor, and yes, even toilet seats, gold has long been regarded as a display of wealth. Human beings have used gold as a measure of value for more than 2500 years. Even today, with the proliferation of digital and non-digital currencies, gold is one of the oldest and most universally recognizable stores of value in the world.
While gold is well-known and renowned for many different applications, notably jewelry and gold bars, there’s more to investing in gold than holding a chunk of metal in your hands. Here are four reasons you may want to consider gold as a part of your overall investment portfolio to diversify your wealth.
Reason #1: Gold is a hard asset
Most of the assets invested in today are paper securities. They may be backed by a company, loan, or building, but there is no physical asset for them. Gold is different. It’s a heavy metal you can pick up and hold with your hands.
Because gold is a physical asset, you don’t have to worry about certain risks, such as counter party risk, that exist with stocks, bonds, or other paper assets. Gold’s value may rise or fall, but it historically does not disappear like a stock or bond if an issuer defaults or goes through bankruptcy. It has its own intrinsic worth. Its price isn’t determined by the performance of a single economy. That’s why gold has been used for trade and as a way to store wealth for thousands of years.
Reason #2: Gold can hedge dollar risk
Since gold and the U.S. dollar typically exhibit an inverse relationship, it can serve as a hedge against a weakening U.S. dollar. Gold is widely priced in U.S. dollars, so a weaker dollar makes gold relatively cheaper for investors using other currencies, leading to increased demand.
Additionally, when the value of the U.S. dollar decreases, it can lead to concerns about rising inflation. Because of this, you can use gold to help protect your portfolio from the risk of higher inflation and help preserve purchasing power.
Reason #3: Gold diversifies your portfolio
Gold doesn’t perform the way stocks or bonds do. In fact, when stock markets turn volatile, gold prices often rise, because gold is historically seen as a safe-haven asset. One study found that in 83% of the time periods when stock returns were negative, gold returns were positive.
Gold typically has a low correlation to stocks. For example, over the 20 years from 1988 to 2019, gold and stocks’ correlation were only 0.085. Assets that move in perfect sync have a correlation of 1.0, so this is a very low number indicating that gold prices typically move independently of the equity markets.
Because gold often zigs when other assets zag, it can help balance out the risk in your portfolio. It’s a generally accepted concept that adding gold to a well-diversified investment portfolio can help mitigate the overall risk profile.
Reason #4: Long-term growth
In times of geopolitical turmoil or economic crisis, gold is often viewed as a safe-haven asset, meaning investors tend to use it as a way to park cash and preserve capital when the risk associated with other assets gets uncomfortable.
However, gold doesn’t just store and protect value; it can also be a driver of growth. While there is a finite supply of gold, demand has continued to increase. Since October 2003, gold prices have risen from $630.52 to more than $2,000, a three-fold increase. Adjusted for inflation, the increase is even greater: gold prices have gone up by more than 400% over this period.
Two ways to buy gold with Battle Bank
At Battle Bank, we offer our clients access to two different ways to invest in precious metals which includes gold, silver, platinum, and palladium.
- Allocated Metals. This means you get to choose the coins and/or bars you buy. The metals can be delivered directly to the address on your account (delivery fees apply), or we can store the metals on your behalf (storage fees apply).
- Unallocated Metals. This is a bulk bullion option for those interested in buying physical metal without the typical costs of buying coins or bars. There are no delivery options, which means there aren’t any storage or monthly fees. If you ever want to take delivery, you can convert into Allocated Metals at any time.
Of course gold glitters, but that’s not all
There’s a reason gold has stayed in such high esteem for so long. Sure, it’s shiny and pretty, but it is also a powerful financial tool for protecting, hedging, and growing your overall portfolio. Learn more about Battle Bank’s wide range of precious metal investment options.
