Gold has been a highly sought-after commodity for millennia, there is no doubt about that. To this day, it signifies wealth and status, but it also has a more practical purpose. People can invest in gold to diversify their portfolios and mitigate financial risk in a turbulent economy. That’s because this precious metal holds its value over time, and while several factors can influence the price of gold and cause fluctuations, it’s generally viewed as a safety net for investors.
In this post, we detail 4 reasons why people invest in gold and why it remains a popular commodity for modern-day traders.
1. Portfolio diversification
Portfolio diversification is a tried and tested approach to investing that acts as a way of covering against potential losses to secure more long-term financial stability. With this in mind, gold stands as an excellent option for investors looking to add more balance to their asset classes. This is because, more often than not, gold’s value correlates very poorly to other investments. So, in times of economic uncertainty, while other assets can be more volatile, gold will tend to hold its value better, acting as a buffer against market downturns. We saw this in 2022, when – in light of the global pandemic – demand for gold grew by 28% worldwide.
On the flip side, this means that when other assets are thriving, you might not see as big a rise in the value of your gold. However, as a long-term investment, this precious metal certainly helps to safeguard your finances by mitigating risk. Especially when you are coming closer to planning for your finances in retirement.
2. It’s an accessible investment
When deciding where to invest your money, accessibility is a big factor. With a lot of investments, there’ll be a lot of hoops to jump through before signing on the dotted line and securing your asset. When it comes to gold, it’s a far more straightforward process. If you’re buying physical gold, all you have to do is visit an online retailer and browse the products they have available. One major hurdle to investing in physical gold is the need for a secure storage solution, which is why some investors instead turn towards an ETF (exchange-traded fund). These are essentially gold stocks and are generally considered to be the most cost-effective way of investing in the precious metal.
If you are investing in physical gold bullion or sovereign, make sure you use a reputable precious metals retailer, to ensure the quality of your purchase. A trusted brand will only stock items that have been certified for their weight and purity, so double-check the company’s credentials and reviews before parting with your money.
3. Economic factors
Gold has always played an integral role in the global economy. The gold standard was once one of the most prominent monetary systems in the world. While the value of currencies is no longer directly linked to gold, it continues to be a coveted commodity, not only for individual investors but also for governments around the world.
For both governments and individuals, gold acts as an effective hedge against inflation, which in recent years, has risen to the highest level seen in decades. As well as inflation, gold is a safe way of hedging against currency risk. And, with the uncertainty surrounding Britain’s position in the global financial landscape, it’s important to have ‘safe-haven’ investments that will be protected even when the pound’s strength fluctuates.
4. Growing a gilded portfolio
All in all, when you invest in the right way, gold has the potential to boost your long-term financial wellbeing. But, before making any major decisions regarding your investment options, it’s always a good idea to consult a financial advisor. They’ll be able to assess market trends and what they mean for your investments, to help you make better decisions with your money.
James Banerjee is an Account Director who graduated from the University of Kent in 2014. He works in SEO on clients such as HSBC UK and Nestle and he has a keen interest in personal finances and money-saving advice.
