Gold in 2021 was not quite the money maker for business people, and most investors sought other investments that looked more attractive. The precious metal lost about 5%, from $1887.60 in December 2020 to $1,794.25 in December 2021.
The asset is considered a safe investment since it doesn’t move in the market’s direction. That is because it’s supposed to act as a defensive asset when the markets decline.
However, even though gold is a safe investment, it can also be considered risky due to its price volatility. For instance, when markets are rising, investors tend to turn to gold as they believe that the price of stocks will fall.
Table of contents
- Understanding Gold as an Investment
- Gold in the Modern Economy as an Investment
- Gold Investments as Protection Against Inflation?
- Diversifying Your Portfolio
- The “Safe Haven” Analogy
- Is Gold a Step Higher than Other Assets
- Investing in Gold in 2022
Understanding Gold as an Investment
Understanding the history of gold is very important to get it purposefully. It started long before the Egyptians started making religious artifacts. It wasn’t until around 560 BC that people began using gold as a currency. During this time, merchants wanted a standardized form of money that users could easily trade. Creating a gold coin with a seal seemed like the ideal solution. Over time, merchants widely accepted the precious metal throughout the world.
The rise of gold as money in Europe and the U.K. continued to grow. Various relics from the Roman and Greek empires were displayed in museums worldwide.
The British pound, also known as a pound of silver, was created based on the amount of gold it represented. In general, gold symbolizes wealth in various parts of the world, such as the Americas, Africa, Europe, and Asia.
Gold in the Modern Economy as an Investment
Even though gold no longer backs the U.S. dollar, it still has a significant global economic impact. It is clear because various international financial organizations still hold it. Currently, the world’s central banks hold almost 20% of the world’s gold reserves. These reserves cushion the effects of the global economic slowdown.
Gold Investments as Protection Against Inflation?
According to calculations by asset management firm Flossbach von Storch, since 1973, gold has outperformed the U.S. inflation rate by around 2 percent. It has also exhibited long-term inflation protection.
Aside from investing in physical gold, investors can also benefit from the various ways gold can protect their money. For instance, investing in gold through a financial institution is the most expensive way.
The gold market is a highly liquid market with around $170 billion daily trading volume. Institutional and wholesale investors mainly use it. Private individuals can also benefit from the gold bars and coins that they can purchase from a bank or a jewelry store.
One of the most cost-effective ways to invest in gold is purchasing gold-backed exchange-traded commodities. These products offer a high degree of security as they are 100% gold-backed.
A common type of gold-backed product is the Xetra-Gold, a security that allows investors to receive physical gold at any time. This type of product has various advantages, such as low cost and the ability to access the gold in its safe custody.
Diversifying Your Portfolio
Not many people realize that investing in gold can be an excellent strategy to achieve a diversified portfolio. It can help manage the volatility and returns of your investments.
For investors, gold can provide a wealth protection strategy. It can help minimize the impact of a potential wealth wipeout in an emergency. No matter what the market does, gold will still be around for a long time.
One of the best ways to get into gold is through an EFT, which eliminates the need to keep it in a vault or a secret place physically. This method allows you to focus on the price instead of worrying about its security.
The “Safe Haven” Analogy
The increasing political and economic uncertainty that we see globally is a reality of today’s economic environment. Due to political and economic uncertainty threats, investors look to gold as a haven. During times of crisis, they can protect their wealth and escape from all of the turmoil. In stocks, bonds, and mutual funds, the value of your investment depends on the company’s performance, which is not an issue when it comes to gold.
Is Gold a Step Higher than Other Assets
Due to the various geopolitical issues that could affect the gold price in the future, such as the Coronavirus pandemic and the Ukraine-Russia conflict, it’s not likely to reach its peak until 2022. However, wealth managers generally recommend that clients keep up to 10% of their assets in gold to protect themselves from potential economic downturns as a rule of thumb.
One of the most important factors that investors should consider when investing is the time frame. Knowing this can help them determine if the market is likely to perform well. Although gold is not a perfect investment, it can be beneficial to diversify your portfolio by investing in it when the price of gold rises.
You can find more information on investment and what is happening in the general world markets on Top1Markets. Top1Markets is one of the best forex trading platforms if you are looking to invest in other marketplaces.
Investing in Gold in 2022
Many people believe that investing in gold is an excellent way to protect yourself against rising prices. However, the facts show something different. Gold is a better hedge against financial disaster than inflation in many cases. When gold prices rise during times of crisis, it’s usually a good idea to consider investing in the metal. However, it’s essential to remember that rising inflation could cause you to lose money.
One should also consider investing in assets such as stocks and bonds to generate current income and fund their lifestyle. However, it’s not always a good idea to rely on gold as an investment.
As a store of value, gold is also prone to experiencing volatility. However, its dual function as a commodity and a store of value makes it harder to predict its price. Although it’s always a good idea to invest in gold, it’s also important to remember that it’s most beneficial as a long-term investment. Even if you only add five percent to your portfolio, it can still improve the fund’s overall performance.
Disclaimer: The views and opinions expressed in this article are solely the author’s and do not necessarily reflect the views of CoinQuora. No information in this article should be interpreted as investment advice. CoinQuora encourages all users to do their own research before investing in cryptocurrencies.