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Top Reasons Why You Should Own Gold As Part of a Diversified Portfolio

Gold, and to a lesser extent silver, has traditionally played a role in the portfolios of wealthy investors. Thanks to its unique properties, that role has not diminished today. Here are just a few of reasons why you should consider investing some of your savings in precious metals.

A “Scandal-proof” Investment

The value of most financial assets, such as stocks, bonds, or mutual funds, depends upon the financial solvency and honesty of another party. If a company goes bankrupt or is mismanaged, the value of its shares and bonds will decline. Fund managers can similarly make mistakes in stock selection or the use of derivatives – mistakes which impact the value of their shares. Fraud too has often played havoc with investors. However, gold bullion is one of the few assets whose value does not depend on other peoples actions, which is why it has functioned throughout history as the most reliable store of value.

Low Correlation with Other Assets

The price of gold is largely uncorrelated with the stock market, which means gold is less likely to lose value during a market meltdown. Diversifying into gold can therefore offer you a measure of protection from the sort of volatility that has plagued the markets in recent years.

Protection from Inflation

Inflation is defined as rising prices for commodities (and the corresponding fall in the value of money). As a commodity, the price of gold tends to rise along with that of other commodities, helping you retain the buying power of your savings. For instance, during the 1970s when inflation soared, gold prices set new heights. Since 1984, while the U.S. dollar has fallen to just over half its former value, gold prices have quadrupled. Because inflation never entirely disappears, gold will always be an important tool for preserving buying power.

Protection from Deflation

Deflation, or falling prices, can be an even more serious economic threat than inflation. During the deflation that occurred during the Great Depression of the 1930s, gold was one of the few assets that retained value. This makes gold one of the few assets that can protect savings against both inflation and deflation.

Protection from Geopolitical Risk

Gold can also be a safe haven during times of geopolitical uncertainty (war, terrorism, plague, natural disaster, etc.), when people lose confidence in the economy and the social order. Gold is unique in that it has retained value for over 2,500 years, in which time many governments, empires, and currencies have risen and fallen.

Opportunity to Profit From Supply/Demand Pressure

Physical gold has traditionally played a significant roll in U.S. retirement savings and especially in Asia. Todays rapidly growing middle class in India and China has led to higher global demand for gold. Central banks, once net sellers of gold, have begun increasing their reserves in recent years. At the same time, the worlds gold supply grows only slowly. According to Thompson Reuters GFMS survey, roughly 171,300 tonnes of gold have been extracted from the earth throughout all of history. And the U.S. Geologic survey estimates that there roughly 52,000 tonnes left in the earth that are extractable. That means most of the worlds gold supply has already been bought and paid for. Should gold demand continue to outpace production, buying gold on price dips could be a profitable practice in coming years.

For all these reasons, investors should consider investing a minimum of 5% to 20% in gold and silver bullion.