Gold: An Asset for Uncertain Times

Gold has been purchased by many investors over the last few years because of a good price forecast based on high demand and limited supply. But this precious metal asset’s value goes beyond that. Gold also provides portfolio diversification, protection against inflation and has been the go to asset in times of economic uncertainty.

For portfolio diversification, gold makes perfect sense. Basic investment theory tells you that portfolio diversification can improve returns while reducing overall risk. As economic and political climates change, the performance of various asset classes changes as well. Case in point, from 1991-2000, the S&P 500 was up 17% while gold was down 3.4%. But from 2001-2005, gold was up 13% while the S&P averaged just .5%.

Gold’s dissociative performance compared to other assets such as stocks and bonds makes it the ultimate portfolio diversification tool. This quality, when properly utilized in a retirement portfolio can substantially reduce chances of loss when faced with an economic climate that is unfavorable for other asset classes. This non correlation of gold’s performance is found in other commodities as well.

Gold has been used as an inflation hedge for thousands of years because it tends to hold its value. It has been used not only as a currency, but as money. Currencies, like the US Dollar are can be devalued through government manipulation, aka quantitative easing. Gold cannot be debased by central banks or governments making it a store of wealth in times of inflation.

Because gold’s value moves opposite of the dollar, gold is also valuable as a hedge against a declining US currency. As the dollar or any fiat currency for that matter is depreciated, the value of gold goes up. This is due in part to the fact that a real asset priced in a weak dollar tends to go up in value. Additionally, gold has a record for holding value during the higher inflationary episodes caused by fiat currency devaluation.

The gold market can be accessed in multiple ways, including physical bullion or exposure to gold markets. Physical gold coins and bars can be owned outright, allocated in a Gold Account or placed in a Self-Directed Gold IRA. Paper exposure can be had through Gold ETFs, mining stocks or gold futures and options.

For many, physical gold is the obvious choice due to mistrust in the markets and a “if you can’t touch it, you don’t own it” attitude. Physical gold cannot be erased from your account electronically.

Now obviously gold is not the perfect asset for all situations as its price relies on multiple factors. But it has proven its value in uncertain economic and financial times. Today, with the US government sporting a $16.5 trillion national debt, the FED continuously devaluing the dollar and inflation on the horizon, gold might be the perfect fit.

For more information on physical gold and Gold Backed IRAs, visit goldirahq.com.

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