People have been trading gold longer than they have been exchanging currencies. Gold precedes the stock market and it was being traded long before people were investing in stocks. Whilst this precious metal has a lot to offer investors, it is not without its disadvantages. It is important that when you buy gold bullion you know exactly what you are getting yourself into.
The history of gold against stock markets
Ever since the stock markets were created, gold ha gained a reputation of having a positive correlation to inflation and a negative one to stocks.
According to historians, people began producing gold coins and using them as currency as far back as 500BC. Having gold was always regarded as a sign that one was wealthy. People not only traded gold coins or exchanged them for goods and services, anything made of gold could be used to batter for things instead of whatever currency was being used at the time. For millennia, gold maintained its status as a symbol of power and wealth.
However, gold became a part of the contemporary financial systems in the 1800s. Nations across the globe adopted a gold standard which fixed the countries’ currency to the value of gold. The gold standard was abandoned and in it’s place a system of floating fiat currencies was adopted.
The price of gold moved ever so slightly, at times it seemed to be stagnant until 2008 when the global economy was plunged into a crises. Then, the price started to climb. Evidently, the adoption of quantitative easing by powerful nations like the U.S pit the value of fiat currencies into jeopardy. A lot of people realised that paper money as we know it, could be rendered useless in a matter of days. The rise in the value of gold reinforced the notion that printing more money to counter an economic crises does more harm than good as it increases the rate of inflation.
Why buy gold bullion as an investment?
Experienced and savvy investors buy gold for a number of reasons which include the following:
Consider what the price of gold was ten years ago an where it is now. It has increased exponentially, faster and higher that a lot of other asset classes. If you bought a gold bullion coins for $100.00 years ago, it would be worth more than that but a $100.00 will always be a $100.00 bill. It might even buy less that it used to all those years ago.
Protection against the rising inflation
Gold behaves differently to other asset classes when it comes to inflation. Its value actually appreciates when inflation goes high and the country’s official currency depreciates. This is why investors who buy gold bullion consider a hedge and a safe haven for their wealth. The boo like is that gold retains its value actually becomes more expensive when the dollar depreciates.
It’s a long held belief that gold is the safest investment to make because it is not affected by the rise and fall of interest rates. Unlike fiat currency, it can’t be printed to control supply or demand. It is a scarce commodity but luckily it is also recyclable this is why it always has value regardless of how old or damaged it may be.
Investing in gold like any financial asset has its own risks. When you buy gold bullion, make sure that you understand all the different aspects of gold investment.