From ancient times to the modern-day, gold has been an enduring symbol of wealth. Interestingly, all the gold produced to date can not fill four Olympic-sized swimming pools. With its value stemming from its rarity, Gold has become a market barometer. That’s why when markets go haywire, many investors turn to gold as a haven. As a result, bullion dealers especially in the US have reportedly run out of Gold from panic buying.
The main reason investors hold this precious metal is its role as insurance against tough times. Historically, it has been an excellent hedge against inflation. This is because its price tends to rise when the cost of living increases. Over the past 50 years, investors have seen its prices soar and the stock market plunge during the high-inflation years. As when fiat currency loses its purchasing power to inflation, gold tends to be priced in those currency units. Hence, it is likely to rise along with every other commodity.
Furthermore, gold is the instrument of choice for the diversification of an investor’s portfolio. As it historically has a negative correlation to stocks and other financial instruments, it creates a see-saw effect in times of crisis. Hence, conservative investors combine gold with stocks and bonds in a portfolio to reduce the overall volatility and risk.
Gold as a crisis commodity is also rooted in the various in which it can be invested. investors can choose from gold-related and backed products instead of purchasing the precious metal in itself. For instance, investors can purchase bars or collector coins and hold them at a financial intermediary or bank. Alternatively, you can choose to invest in different products and vehicles, including gold accounts and exchange-traded funds (ETFs). ETFs are backed by bullion that is listed on the exchanges and traded as shares. Additionally, investors can choose to open an account whereby bullion is managed and held by a dealer or even invest in an accumulation plan. Other vehicles include spread betting, CFDs, derivatives, and certificates.
Derivatives come in different varieties, including options and forwards and are bought and sold over-the-counter and on the exchanges. Whatever the product of choice, investors usually consider the factors that affect the price of gold. These include emergencies and disasters, short selling, jewellery recycling, hedging, and the central banks. For example, Mining shares are considered risky investments. This is because of complications that may arise from natural hazards, and risks such as corruption, theft, and nationalizations.
Interestingly, although hallowed as a crisis commodity, Gold is not immune to economic changes. Once a universal currency, Gold has now been reduced to the primary purpose of jewellery. Hence, it begs the question: With the present coronavirus crisis, does it still pay to invest in gold? And if so, in what quantities? Experts use different instruments and strategies to find answers to these questions. They include market trends, moving averages, chart patterns among other tools for technical analysis. In addition, investors may ought to look at regional factors such as taxation and whether bullion and coins are exempt. This should confirm whether capital gains tax and other taxes apply based on residence.
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