Is Physical Gold Still a Good Investment?
Faced with volatile stock markets and inflation on the horizon, investors have turned to physical gold investment as a way of protecting their wealth. Although investing in physical gold may provide benefits such as storage fees and capital gains taxes, investing may come with costs.
Answering this question is ultimately subjective, depending on your goals, time horizon and risk tolerance. But let’s examine some advantages associated with physical gold ownership.
It’s a safe haven
Gold’s long track record of consistently holding value makes it an attractive asset to hold during times of economic instability, unlike stocks or bonds which tend to decline (Qin et al, 2020).
Physical gold is widely considered to be an investment safe haven due to its lack of earnings reports, dividend payments or disgruntled shareholders – one of few investments which have not gone to zero over its 3,000-year existence.
Gold also acts as a reliable hedge against economic policy uncertainty, including fiscal (relating to taxes and public spending), regulatory, and monetary (Baker et al, 2016). Gold tends to have low or negative correlation with other assets during recessions – making it a useful diversifier. ETFs do not offer this benefit due to counterparty risk issues; physically owned bullion does provide this flexibility as investors can easily take possession of it at any time.
It’s a store of value
Gold has historically served as an effective store of wealth. Additionally, it acts as a hedge against inflation and diversifier in your portfolio, while remaining tangible and easy to store at home or bank safes. When investing in gold there are multiple methods available including physical bullion purchases, stocks and ETFs each offering distinct benefits and drawbacks so it is important that when choosing an approach it best fits with your investment goals, risk tolerance and timeframe in mind.
Gold’s popularity can be explained simply: from central banks seeking to diversify their reserves to individual investors looking for protection during times of economic distress, gold provides a safe haven.
Gold’s low correlation with other assets has also made it an attractive investment choice, but investors must understand its risks before making their decision. Therefore, it would be prudent to consult a financial professional prior to purchasing any asset.
It’s a hedge against inflation
Gold’s resistance to inflation makes it an effective protection against currency fluctuations and the erosion of purchasing power, particularly during periods when central banks engage in expansionary monetary policy like cutting interest rates. Furthermore, unlike paper currencies or stocks which depreciate over time, gold remains stable as an asset class over time.
When investing in gold bullion, it is crucial that you use only physical forms and purchase from trusted sources. This will eliminate dependence on third parties while simultaneously lowering storage costs and safeguarding against theft or robbery of your investments.
Physical gold offers another advantage of wealth preservation: it can easily be passed on to future generations as an inheritance asset, unlike paper gold which requires being linked to a bank account and may impose inheritance restrictions. Furthermore, owning physical gold may help diversify and lower risks in your portfolio.
It’s a long-term investment
While many investments can be volatile and decline over time, physical gold has long held onto its value and provided investors with protection against inflation while diversifying their portfolios.
There are various methods of investing in gold, from purchasing physical bullion to investing in companies that mine it. While holding physical gold may provide the same experience, these other forms may provide greater liquidity and reduced transaction costs.
Investors can also invest in ETFs that track the price of gold to avoid storage and transaction fees associated with owning physical gold, but may not offer the same return potential as shares in mining companies that pay dividends. When considering any investment option, whether gold is right for you will depend upon your goals, risk tolerance and time horizon; ultimately it should form part of your portfolio alongside other income-generating assets.
Categorised in: Blog