For centuries, gold has been a staple financial commodity that’s been traded to and fro across markets the world over. Today, gold remains one of the “safe haven” commodities that are always in the investment portfolios of traders in the know. And for good reason.
Here are the top three reasons to trade gold online today:
Gold and other precious metals are effective hedges against risks such as inflation, deflation, and even stagflation
Gold, silver, and other precious metals are considered “safe haven” assets and are integral parts of a well-balanced portfolio because they serve as hedges against risk. Of course, gold also faces price fluctuations, but when leveraged properly, this safe haven commodity can curb economic risk.
Inflation, deflation — the state in-between called stagflation — all of these are major drivers of financial markets all over the globe. Indeed, the very expectation of any of these arising can already influence markets.
And yet gold has proven itself to be an effective hedge strategy in the face of any of these crises.
During the hyperinflation of the economy of Germany’s Weimar Republic from 1921 to 1924 (the height of which was in 1923), gold traded at 118.23 billion marks per ounce. It traded just 87 marks per ounce just seven years earlier in 1918. Those numbers aren’t erroneous recordings either.
Gold’s wholesale prices shot up from 2.34 to 725.7 billion index points in just half a century during that time. During the worst of the inflation crisis, gold’s prices doubled every other day.
Investors who converted marks early in the crisis were able to shield their savings. Those who didn’t were at the mercy of the inflation.
Gold proved its usefulness yet again this time during massive deflation in the 1930’s. During the Great Depression, gold was fixed at $20.67 per ounce. Come 1933,it was $35 per ounce. As the general price levels fell, gold in turn gained purchasing power due to fixed benchmarks.
Furthermore, since gold is a stand alone asset — it’s not simultaneously someone else’s liability — it gives you an advantage during deflation. It’s an asset held outside the financial system, so it doesn’t carry the same attendant counterparty risk as commodities like annuities, bonds, common stocks, or bank deposits.
And what about stagflation?
In recent history, financial markets the world over have seen disinflation in asset bubbles, failures in financial institutions, unfolding of sovereign debt risk, and meltdowns of global systems of trade. Throughout all of these, gold consistently delivered. In the 2000s, gold rose from below $300 per ounce to over $1,900 come 2011. That’s upwards of a 600% gain.
Gold serves to diversify investment portfolios
One of the most common pieces of advice investors receive when they first start out is to diversify their portfolio. Diversification minimizes risk exposure, which of course maximizes returns and improves stability.
As we discussed in the first point, gold and precious metals are effective hedges against risk, so they are good buffers against economic turmoil — perfect for diversifying your portfolio.
Now, add to that the ability to invest directly in physical gold assets or indirectly through mutual funds and ETFs — even investing in gold mining company stocks — and you’ve got a solid combination of benefits. These are several layers of diversification in just a single commodity.
Gold has universal value, and like other precious metals, is very marketable
As pointed out earlier, precious metals aren’t impervious to price fluctuations, but unlike hard currencies, they have intrinsic value distinct from their market value. Their value remains intact for long periods of time, unlike the foreign exchange. Gold, after all, has been used for millennia.
Furthermore, investors who own physical gold assets such as coins and bars can easily find markets outside of financial trading. This reflects the near universal marketability of precious metals anywhere in the world.
Essentially, gold is like a currency whose intrinsic value lies outside of the policies conducted by governments. So any volatility in individual markets might affect trading prices, but not the value of physical gold itself.
This might seem like a far-fetched suggestion given that an investor’s portfolio is always focused on trading markets and not physical ownership of assets and direct sales. But the point is that gold remains valuable even if trading markets fluctuate wildly, and just that simple fact gives it additional value as a commodity traded online.
That said, it definitely wouldn’t hurt to invest in physical gold as well as stocks and mutual funds. Like mentioned earlier, gold is excellent in diversifying portfolios, so it’s a good idea to maximize that benefit.
Gold trading online is only the most current form of trade where gold has found a valuable role to play. It’s been valuable for millennia, and it continues to be versatile to this day. Keep up with gold trading news and gold market research here and you’ll soon reap the benefits of trading gold online yourself.
