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Is Gold a Safe Investment?

From gold exchange-traded funds (ETFs), to gold shares, to buying physical gold, buyers now have numerous options when it comes to purchasing and investing in gold. However, with so many options available, you may be wondering exactly what the purpose of gold is and why you should consider investing in the gold market.

In the modern economy, where paper currency is the preferred option, gold is often viewed simply as a metal that is use to create jewelry.  This is far from true though.  Gold is used in manufacturing, its used in electronics and sensitive componenets, and its still an extremely valuable investment metal.  In fact it is one held by private corporations, central banks, wealthy individuals, and regular people alike as a means to grow wealth and diversify their holdings.  To learn more about gold and its place in the economy, please keep on reading.

A History of Gold

To fully appreciate the role that gold plays in the modern economy, you must first understand its impact over history.

Gold first came onto the financial scene in 3000 BC. At this time, the ancient Egyptians used gold to create jewelry, but it wasn’t until 560 BC when gold actually began to be used as a type of currency. Merchants were looking for a way to create a standard and easily transferable type of currency that could be used to simplify trading. Since gold jewelry was already widely used and recognized around the globe, the precious metal was the natural choice. And so, the gold coin was created.

Over time, the importance of gold grew. The precious metal played a significant role in several civilizations, including ancient Greece and Rome. Eventually, Great Britain created its own metal-based currency, too; the pound.  The popularity of gold as a currency continued to grow, and it became a symbol of wealth throughout the world.

Gold in the Modern Economy

Today, gold remains an important metal in the modern global economy, which is why it remains a wise investment. Here’s a look at some of the reasons why it is still considered a safe and viable investment.

  • Gold is an excellent way to preserve wealth, and it has done so for thousands of years. This is not true for paper-based currency. The value of paper currency declines, while the value of gold continues to increase. Just look at the value of certain paper currencies, like the British pound, dropped after the Britex vote, while the value of gold increased (and it continues to do so!)  Would you rather have your money in cash while inflation eats away your buying power, or in gold which tends to go up in value whether there is inflation or not.
  • Gold is a hedge against the declining US dollar and rising inflation. Throughout history, gold has acted as a hedge against both the declining dollar and rising inflation. With rising inflation, gold appreciates because investors realize that their money is losing value and they will start placing their investments in hard assets that have historically retained their value, like gold. Gold benefits from the declining US dollar because it is globally priced in the US dollar, which makes gold cheaper for investors to purchase when they hold other currencies, thus resulting in a greater demand from investors who have currencies that have appreciated with respect for the US dollar.
  • Gold is considered a safe haven in a world of political unrest. Even as far back as the fall of the Roman Empire, investors who held gold were able to protect their wealth, and in certain cases, they were even able to use their gold to escape from turmoil. Given the current state of political unrest around the world, investors are certainly holding onto gold and viewing it as a safe haven.
  • Gold is a diversifying investment.  This also makes it a hedge against the market.   It is not related to stocks, bonds, real estate or other types of investments directly, which means that it really diversifies your investment portfolio, thus giving you a leg up in the financial world.  When stocks are falling, money tends to pour into gold.  When stocks are rising quickly gold tends to also go up in tandem.  While gold of course does not trade straight up in price, looking at the price over time it is easy to see how the trend has always been up over the long and short haul.
  • Gold is used in manufacturing and is an important metal in electronics.  This means that there is an actual tangible need for gold, apart from purely using it as a medium to convey value.  This has two benefits because it means that gold is constantly being consumed for manufacturing purposes which drains the world supply, and gold has a value in its own right as a necessary metal so it has an actual intrinsic value.

In conclusion, yes, gold has always been, and for the foreseeable future, will continue to be, a safe investment over time.  If you are interested in investing in gold please contact us and let us know what we can do for you.