4 Benefits Of Investing In Gold
October 24, 2022 (Investorideas.com Newswire) Gold has been renowned as a safe haven for investors, since time immemorial. Today, the value of all the gold in the world is about $10.965 trillion, and investors have a wide variety of ways to invest in gold. Gold still provides investors with numerous advantages. Here are four of them.
Gold is a Hedge Against Stagflation
Since the World Bank warned about the threat of stagflation (stagnant economic activity and inflation), the risk has only risen. Inflation remains high, and the World Bank believes that a global recession is likely in 2023. Ned Davis Research believes that the risk of a global recession in 2023 is 98.1%.
The last period in which the world experienced stagflation was the 1970s. In that time, gold was the best performing asset in the world. According to the World Gold Council, gold remains the best hedge against stagflation. For investors worried about stagflation, gold presents a compelling case for inclusion in their portfolio.
Gold always delivers robust returns, with prices increasing at about 11% a year over the last 50 years, similar to US equities, and much better than US bonds. In the last 20 years, gold has outperformed almost every major asset, with demand rising by 15% a year.
A Hedge Against Inflation
Gold is also a hedge against inflation. In times of inflation, gold tends to do well. Gold is important, then, as a way to diversify your portfolio so that during inflation, when stocks tend to go down, gold will bolster your returns. Research by the World Gold Council shows that when the inflation rate is high, gold tends to have high average annual returns. An inflation rate greater than 5% typically tends to lead to average annual returns of more than 20%.
A Source of Liquidity
When many people think of investing in gold, they think of big, lumpy commodities. However, these days, you can invest in gold through exchange-traded funds (ETFs) which trade on stock exchanges like stocks. An investor in an ETF owns a share of the ETF's gold, and so, does not take physical possession of the gold.
Investors are advised to create a retirement portfolio with gold individual retirement accounts (IRAs). These are tax-deferred investments that allow investors to put money away for their retirement. Gold IRAs hold precious metals, namely, gold, silver, platinum or palladium, on behalf of their investors. Gold is the most popular type of precious metals IRA, which is why they are often referred to as gold IRAs. Once again, investors do not take physical possession of the gold. Instead, the IRA is held in trust, in the form of coins and bullion. So, an investor can, if they wish, trade in and out of gold. Gold is as liquid an asset as stocks, or bonds. This has made investing in gold extremely popular, with around $180 billion worth of gold traded every day, more than any other major financial asset.
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