Gold is considered as the type of mineral that comes with a unique characteristic. It is known as the source of money that was the first one to be introduced in the market. After its introduction, it emerged to be a foundation for gold standard setting value for all the money. As a result, gold is a type of mineral that confers familiarity. It raises safety feeling as a form of money that will remain to have a value, despite what.
Gold is mainly uncorrelated with assets like oil, stocks, and bonds because of its characteristics. As per the records, the prices of gold does not increase while that of other assets are increasing. Moreover, no any inverse relationship is connected to it like for the case observed in stocks and bonds.
There are three main reasons why you need to invest in gold. The first reason is that gold is considered as a hedge. The second reason is that gold is a safe haven. Finally, gold is observed to be a direct investment. These are discussed as follows;
A Safe Haven
A safe haven is something that is capable of protecting the investors against the expected catastrophe. This gives an explanation as to why you need to buy gold during the financial crisis.
A Direct Investment
There are high chances of getting huge profits if you invest in gold as a result of the tremendous increase in its price. This is why a number of investors need to buy gold as a direct investment in order to take advantage of expected price increase in the future. There are also cases where investors buy gold because they are taking it as finite and a valuable substance that is accompanied by a number of industrial uses.
As a Hedge
Hedges are defined as the type of investments that do offset the losses in another asset level. The reason as to why you need to invest in gold is because it hedges against currency decline. In most cases, when there is a decline in currency, the imports and inflation prices increases. Therefore, gold is the best alternative for providing defence against inflation.
The investors should keep in mind that gold itself cannot be bought as an investment. Gold is considered to be a speculative investment and it comes with low valleys and also high peaks. As a result, it is a risky investment for the average investors. Over the period of investment, the gold value is not in a position of beating inflation. However, gold performs an integral function of the diversified portfolio. Thus, gold is required to include other commodities like mining, oil, and hard assets investments.