As one of the most well-recognized and reliable forms of currency, gold has long been a preferred choice for individuals and institutions looking to help protect their wealth through diversification. And, in today’s increasingly turbulent economic climate, the advantages of buying gold and owning physical precious metals are clear. Renowned for its inherent qualities – rarity, portability, durability, fungibility, and divisibility – gold’s historically enduring value and reliable returns make it the ultimate store of value.
A Ballast for Your Savings in Times of Crisis – Why Many are Buying Gold
Gold has a long-established tendency to retain its value in times of economic turmoil, making it invaluable as a hedge against market volatility and unexpected downturns. Depending on the market and the circumstances, gold prices can appreciate significantly in the wake of a crisis, moving it from a defensive to a growth asset. In the aftermath of each of the last three recessions, 2020, 2007, and 2001, the price of gold rose, offering owners a chance to recoup their losses by capitalizing on gold’s distinctive inverse relationship to economic volatility.
When a crisis arises and fear takes hold of the market, gold provides owners a means to help protect their assets. The higher the level of uncertainty, the more valuable gold has usually historically become. Gold’s low correlation to other assets, like stocks and bonds, has allowed it to remain a reliable source of stability. By diversifying with gold, owners can limit their risk exposure and ensure that their wealth is adequately insulated from downturns. With many analysts suggesting growing fears of inflation, currency debasement, and further market volatility on the horizon, the security that gold can help provide is as valuable as ever.
Why is Gold Valuable? A Time-Tested Store of Value
Gold’s status as a store of value has been established over centuries of monetary exchange and global financial crises. As one of the world’s oldest currencies with no counterparty risk, gold is one of the few assets that has not only stood the test of time, but also been proven to offer attractive returns during times of economic uncertainty.
If you ask “why is gold valuable?”, history responds with a clear answer. It is replete with examples of gold helping to protect the wealth of individuals and nations during times of crisis. Gold was one of the few assets that held its value during the Great Depression as the economy crashed and spiraled into a prolonged period of deflation. More recently, gold outperformed most other major asset classes in the wake of the 2008 financial crisis.
Owing to its unique qualities and long-standing status as a store of value, gold’s value is universally recognized, making it one of the most liquid and easily tradable forms of currency. Its enduring appeal as a store of wealth lies in its ability to retain its purchasing power on a scale that few other assets can match.
Could Gold Buying be a Hedge Against Shaky Fiat Currencies?
The global adoption of fiat currencies has left consumers more vulnerable to the whims of central banks and their monetary policies. Fiat currencies, government-issued paper money, are based on a system of government-managed exchange rates and debt rather than the tangible, intrinsic value of gold. This makes them particularly susceptible to devaluation and volatility. Historical events across the globe have demonstrated the fragility of paper money and the risk associated with relying solely on fiat. Because it’s not backed by gold, paper money can be printed at will, leaving economies vulnerable to inflation. While it has never happened in the US, around the world, fortunes have been wiped out overnight, leaving citizens with little to show for their lifetime of labor.
In the US, some experts have warned that the explosive growth in money supply through the Federal Reserve’s quantitative easing program has placed the dollar’s long-term value in jeopardy. Since 2019, the Fed has more than doubled the size of its balance sheet, leading to devaluation of the US dollar and inflation that could threaten the foundation of its purchasing power. A dollar today is worth only a fraction of what it was worth fifty years ago, and with inflation continuing to rise, its purchasing power may shrink further.
Many experts warn that the dollar now faces a growing risk of losing its status as the world’s reserve currency amid rising concerns that the US government is unable to control its deficit spending. With much of the Western world now mired in debt with no clear path to fiscal sustainability, there is a growing consensus among economists that more money printing is on the horizon and with it, higher inflation, and further devaluation of currencies.
Gold , meanwhile, can offer a means to help protect assets against reckless government spending and monetary instability. As one of the world’s oldest and most reliable forms of money, gold can help offer durability and reliability. With no central issuer to dictate its worth, gold stands as a bulwark against currency devaluation and eroding purchasing power, making it an ideal asset for individuals who are looking to help protect their wealth over the long term through diversification.
Soaring Demand Outpacing Sluggish Supply
Central banks across the globe have been quietly amassing gold reserves in the face of ongoing economic uncertainty and the prospect of rising inflation. With many countries now facing their own versions of debt-fueled financial crises, central banks are increasingly turning to gold. In 2022, demand for gold jumped by 18%, reaching an 11-year high amid a wave of interest from central banks and institutional investors. Central banks alone added 1,136 tons to their reserves, the highest yearly purchase on record – a trend that has continued into 2023. This, combined with rising demand from private individuals and jewelers has pushed gold prices to all-time highs in recent years, with prices poised to continue their upward trajectory given the current macroeconomic environment.
At the same time, rising production costs and declining ore grades have led to subdued growth in global gold supply. As the world’s major gold producers struggle to replace reserves and existing supply concentrated in the hands of central banks, demand continues to outpace supply and drive prices higher. The imbalance between supply and demand has created a unique opportunity to capitalize on the upside of gold’s price action, while simultaneously helping to diversify savings to protect against inflation and currency volatility.
With economists warning of an increasingly blurred outlook for global economies and central bank buying showing no signs of abating, gold has emerged as one of the few reliable ways to help hedge against economic cycles and currency devaluation. And with its finite supply and demand-driven upside, investing how to invest in gold offers a unique opportunity to help protect savings against inflation, while still taking advantage of the upside potential of its price appreciation.