In this economy, investors have a hard time predicting returns. The stock market rises and falls seemingly at random. Thanks to the European debt crisis, the bond market is in constant turmoil. With unknown variables threatening even the most well diversified portfolios, some investors have pulled out of the market altogether. Fortunately, one commodity still offers a relatively safe harbor. It’s no surprise that more and more investors have turned to gold. There are countless good reasons to trade gold, but five rise to the top for most people.
Five Good Reasons to Trade Gold
First, gold is nearly universally valued. Civilizations across the world and throughout history have valued the soft, shiny metal as a material for art, as a tradable commodity, and as a currency. The global appeal of gold means that, as an investment, sellers can always find a market. Unlike other commodities, which are often culturally specific and difficult to trade, a smart investor can sell or trade gold basically anywhere.
Second, gold can be traded as a currency and as a commodity, making it extremely flexible for investors. Many people forget that gold is useful in many industrial applications, including high tech equipment like lasers and other electronics. Gold is also used in jewelry around the world. This means that, in addition to buyers who want to use gold as a medium for trade, there are also many buyers who want to use gold as a good or a product. The dual applicability of gold means that people who trade gold have the advantage of constant demand. In other words, a portfolio that includes gold is automatically diversified.
Third, gold is a reliable hedge against monetary stress. Today, even the most stable currencies are at serious risk. The ongoing European debt crisis threatens the stability of the euro. The Japanese yen has seen major fluctuations in value over the last two decades. Even the American dollar has seen its value shaken by political infighting and credit downgrades. Gold offers investors a buffer against unexpected currency devaluations. Because many people flock to gold when the value of their home currency declines, gold owners can expect to see their portfolios rise in value when others see their portfolios decline.
Fourth, gold is a proven high-yield investment over the last ten years. While no investment is risk-free, gold has performed remarkably well over the last decade. In 2003, gold traded at well under $400 per ounce. In early 2013, gold traded at well over $1,500 per ounce. With that kind of return on investment, it’s easy to see why millions of people have been increasing their gold holdings.
Fifth, and finally, gold is a reliable source of value in even the most desperate economic times. A total economic meltdown or an invasion could completely eradicate the value of a currency like the American dollar. Although those scenarios seem very unlikely, they are not impossible. If such a catastrophe were to occur, paper money would likely be completely worthless. Gold, on the other hand, will retain its value even if governments all over the world suddenly collapse. This quality makes gold the ultimate safety investment.