Should You Be Investing in Gold?

Gold has always been the most sought-after commodity, and people used it to show one's social status or ensure another's financial status. During the modern times, gold has become the major hedge against inflation and global instability. Today, gold is highly sought after due to a decrease in purchasing power of paper currencies, especially the U.S. dollar, which became the main reserve currency for most countries since 1944. In times of both calm and uncertainties, people still look for gold to preserve their wealth or even pass it on to their descendants.

However, as powerful as the gold is, it can only preserve your wealth but not actually generate profits per se, not the same way stock market dividends can. Still, in case of an economic crisis it is the precious metals that maintain value, while paper money's value decreases. The question of should you invest in gold can have a simple answer: "it's entirely up to you". But, if history teaches us one thing, it's that gold prevails even through most difficult times. Here are a few reasons why investing in gold is a smart choice.

Money loses value over time

When inflation hits the global or local economy, paper money loses its value, while gold prices skyrocket. For instance, a $100 worth of investment in gold back in 1970 is now worth nearly $3,000. Now, one might say that those $100 were a hefty investment nearly 50 years ago, but if you kept the paper money you'd still have $100 today, which is around 17% of its original value.

The main reason paper money loses its value over time is that governments tend to overprint it. The more money there is the lower the purchasing power becomes. A good example is the U.S. dollar which continues to devalue over the years. The Federal Reserve keeps printing new money, which doesn't cause the prices to go up, but it does require from you to spend more of it on the same merchandise.  

Crisis commodity

Whenever there is a financial crisis or a geopolitical instability, the prices of gold rise up. People tend to turn to safety whenever they feel threatened or when there is a lack of confidence in governments. That's why people believe it's a good investment to buy gold at such times, because gold can surpass other investments.

For instance, the immigration crisis in Europe has led to an increase in gold prices. Also, the new threat on the horizon, which increases global tensions, is the conflict between United States and North Korea. These global conflicts make people want to protect their wealth by turning to gold, which is known to withstand both financial and geopolitical uncertainties.  

Supply and demand

The production of gold has been declining ever since 2000. The large portion of gold supplies on the market came from central banks that have been selling bullions from their vaults since 1990, which was drastically slowed down in 2008. In most cases, it takes around 10 years to put a new gold mine into production. That's why during the times of low supply, the gold prices tend to spike.

Furthermore, gold is in high demand in some countries not just because of its monetary capabilities, but because of its cultural references. For instance, China buys gold bars because it’s the traditional way of saving wealth, while India uses gold in their wedding ceremony seasons that take place in October each year, when the gold demand is at its peak. In addition, a lot of investors are turning towards gold as means to allocate their funds.  

Gold has endured the test of time and still holds its value. Precious metals have always been a valuable currency either for bartering or for preserving wealth. Even today, gold is held high as a certainty which will guarantee the safety of your assets. Investing in gold ensures that you’ll be able to protect your purchasing power from inflation, which happens to be a common issue in the modern times.