You might be wondering whether gold is a good investment for you. Since the pandemic in 2020, many investors are now asking this question, even more so when the market volatility of the equity is now returning. Other governments worldwide are injecting more liquidity into the financial system, which means inflation may be around the corner. See more about the economics of injection on this site here.
The result? Many have flocked to precious metals, which is even one of the major themes in 2020. The post discusses the reasons and history of why so many investors choose gold. It’s also important to look at the advantages and disadvantages of these kinds of assets and see if they are right for you.
Why Should You Try Gold?
You might want to know the reasons why you should invest in gold. After all, this is getting a lot of attention, and some of the reasons it’s become so established are that it’s considered “anti-fiat money.” Its movements have been viewed as directly the opposite of the Euro and US dollar. Other facts that make this metal so interesting are that it’s rare, difficult to mine, and nearly indestructible. The supply of fiat money can be unlimited, but just a limited number of metals can be mined on Earth.
Each year, only about 1.5% is added to the above-ground supply. This is where the numbers may likely fall in the future, as the reserves below the ground can decrease by about 5% each year. About 60% of the overall demand comes from the jewelry, medical, and electrical industries. This is where the need for the metal is considered to be stable.
The other 40% of the demand generally comes from speculators and investors. This is where too many people who want a lot of coins and bars can drive the price higher. This dynamic has been stable for decades because some of the above-ground precious metals are often recycled for investments, and many corporations don’t rely on mining companies for supply.
Spot prices may tell investors about the “value of currencies” like that of the US Dollar at a given time. Gold is considered a real asset, unlike stocks and bonds. Therefore, investing in it can be an excellent hedge against inflation or a perfect way to speculate against the value of many financial assets. Read more about this on Lear Capital reviews for more information about how you can get started. There are a lot of products available like gold coins, bars, mining stocks, and exchange-traded funds that you might want to check out.
History of Investments
Knowing the history of precious metals’ role in the economy can help people understand more the context of their investments. Both silver and gold have held their places in the economy as long as there are commercial activities. In their primitive forms, this bullion and coins were used as a form of money. They were also used to make jewelry, and the supply was also limited. Their value remained in an equilibrium state. They were convenient and more accessible to transport than other valuable items.
Silver and gold remained the primary form of currency until the 19th century. The US dollar is even a single ounce of silver at some point. When paper money first emerged, they were the gold bullion receipts held in the government or bank’s vault. The bimetallic standard was used in America until 1873 when it was removed from the gold standard. Many people had access to the unminted precious metals that posed a risk to the entire system.
While these systems evolved further in the 20th century, many currencies still today are being represented by an ounce of gold. However, lawmakers realized that the entire bimetallic standard was becoming unsustainable, and the US pulled out of the system. This resulted in the price of metals floating freely, and the dollar has started to weaken.
Stocks and Inflation
Before the year 1971, there was no point in investing in gold until there was a fixed price. But during the year 1970, gold was considered a legitimate asset that established itself as an inflation hedge. The value spiked above 14%, and it rose to $2200 in 1980. However, the price weakened when inflation declined, and the stock market was performing well.
Charts and records generally show that precious metals investments perform well during geopolitical tension and financial crises. The oil price is strongly correlated to inflation, and any hostility shown to the countries in the Middle East can cause an interruption of the supply. This will cause the prices of goods and commodities to rise, resulting in inflation.
If the financial system collapses any day, you’ll be left with gold assets that retain their value. At the very least, you can use this as a store of value when things become uncertain.