Why do people decide to buy gold? And why do they consider it one of the safe haven assets? Learn about the most common reasons we see for buying gold and if it’s the right fit for your personal finance needs.
In our 40 years in the precious metals industry, we’ve seen gold prices soar and fall and watched as investors rode the waves of economic uncertainty. Gold is now around $2,700 an ounce which is its highest price ever. Everyone’s taking notice, and many people are wondering if now is the time to invest.
Goldman Sachs recently stated, “It remains our preferred hedge against geopolitical and financial risks, with added support from imminent Fed rate cuts and ongoing EM central bank buying.”
If you don’t read any further in this article, that statement sums up that when we have economic uncertainty, stock market ups and downs, and wars in other countries, people buy gold to protect their wealth.
It becomes a domino effect when more people buy gold because of fears or wanting to reduce their risks, and gold prices go up.
This article covers the top 10 reasons to invest in gold so you can see if gold assets are right for your portfolio.
Why people invest in physical gold
Let’s get right into the top reasons why people buy gold:
1. Inflation and currency protection
Gold protects against the effects of inflation. When inflation rises, the value of paper money falls, but gold maintains its purchasing power since it’s not tied to any one currency. This is also because we have a limited supply of gold in the world, and it’s completely independent of any single country’s economy.
For example, global central banks buy gold to protect their reserves from currency devaluation and rely less on the US dollar. When they increase their gold holdings, demand increases, and the price goes up.
A recent survey from the World Gold Council showed that the majority of central banks expect to increase their gold holdings over the next 12 months. We see this because of gold’s ongoing role as a reserve asset during economic uncertainty.
2. Wealth preservation
People see gold coins and bars as a way to protect their wealth. It’s because gold doesn’t depend on a company’s performance or a government’s stability. It has a self-contained worth that doesn’t rely on political or economic systems. This makes it a good option for preserving wealth for years and across generations.
3. Portfolio diversification
Most advisors recommend gold and other precious metals as portfolio diversification assets. This helps you reduce the risk of losing your entire investment portfolio if something happens with the stock market or we see rising inflation rates like we had in 2022.
Proactive Advisor Magazine’s chart shows that equities have the highest long-term return at 10.66%, but gold has outperformed treasuries, commodities, and the dollar.
4. Safe-haven asset
Many investors view gold as a “safe haven” during economic or political turmoil, so demand for it increases when inflation rises. This viewpoint is enough to drive up the prices of gold coins and bars whenever investors feel concerned about current circumstances.
For example, the Russia-Ukraine war, the Middle East conflicts, and China’s economic uncertainty all cause concerns. In our interconnected world, these crises impact countries worldwide, and investors buy physical gold bars or coins as safer financial instruments than stocks, bonds, or cash.
5. Tangible asset
Some people like the idea of owning a tangible precious metal asset. They want something they can physically hold that can’t vanish in seconds if someone hacks their bank account or if a financial institution collapses.
Gold offers that physical security.
Protect Your Retirement Today!
Physical GOLD offers financial stability and growth potential!
Receive your complimentary Precious Metals IRA FAQ and Timeless Truth About Gold and Silver report.
or call 800-289-2646.
6. Limited supply and demand growth
Another reason people buy gold is because it has a limited supply with a steady demand. There’s only so much gold available since it can’t be produced in a factory or printed like money.
So, you have limited supply, and then you have ongoing demand from central banks, investors and jewelry buyers. Any asset with these types of supply/demand factors naturally becomes more valuable.
7. Global liquidity
Gold offers global liquidity, meaning you can easily buy or sell it anywhere in the world. This makes it a highly flexible investment that you can convert to cash no matter where you are.
You can see how liquid gold is by looking at this chart of daily trading volume compared to other assets like U.S. T-Bills and the S&P 500.
8. Protection from digital risks
One of the advantages of physical gold is that it’s not affected by digital threats. If you have other investments stored online, like stocks or cryptocurrencies, these are at risk for cyber-attacks, hacking, or data breaches. In fact, banks and financial firms account for one-fifth of total attacks, creating risks for investors.
With these issues increasing every day, gold offers peace of mind for investors worried about potential vulnerabilities in the digital financial system. If there’s a major cyber crisis or banking system failure, physical gold provides secure asset protection that can’t be erased or stolen with the click of a button.
9. No counterparty risk
Physical gold doesn’t rely on any institution or third party. It has independent value that isn’t affected by the failure of companies or governments. This reduces your risk since your gold wealth doesn’t depend on someone else to honor their obligations.
In the Reddit r/Gold forum, user Danielbbq shares: “Gold is the ultimate hedge against inflation. It is universally accepted in any country. Gold is the perfect asset for times of turmoil. Gold is the only tier one asset with no counterparty risk.”
10. Portable wealth
Since 1 ounce of gold is worth $2,700, a small amount of gold coins or bars can hold a lot of financial value in a compact space. For example, a 10 oz gold bar is about the size of a cell phone which means you could easily carry gold worth $27,000 in your pocket if you need to take your wealth with you.
We think gold will go even higher and recently discussed how gold might hit $3,000 an ounce on our YouTube channel. You can watch our analysis here:
Choosing a precious metal dealer
Considering adding precious metals to your investment strategy? Here’s why investors choose Swiss America:
Decades of experience: With over 40 years in the industry, Swiss America has weathered various economic ups and downs. Our long-standing presence makes us a reliable and experienced partner in the precious metals sector.
Client satisfaction: Check out our customer testimonials and reviews for quality metals and excellent customer support.
Professional guidance: Our team can help explain the various aspects of precious metals investing. You’ll get recommendations on storage options, gold-to-silver ratios and an analysis of market trends.
Why to invest in gold
While we provided 10 reasons people commonly see gold as a good investment, there may be others that make sense for your situation. The best way to find out is to contact us today and find out if adding gold to your portfolio is a good fit for your overall needs.
10 reasons to invest in gold: FAQ
Should I turn my cash into gold?
The answer depends on your financial goals. Gold can protect against inflation and economic uncertainty and most investors look at this asset as a way to diversify their portfolio.
Is it wise to invest in gold funds?
Yes, you can invest in gold funds. You might want to do this to gain exposure to gold without needing to store physical metal. But since these are paper traditional assets, they don’t give you any of the benefits of physical gold.
Should beginners invest in gold?
Yes, beginners can invest in gold to diversify their portfolios and protect against inflation.
Note: The information in this post is for informational purposes only and should not be considered tax or legal advice. Please consult with your own tax professionals before making any decisions or taking action based on this information.
