Opinions differ when it comes to deciding the ideal gold percentage people should hold in their asset portfolios. The reason they differ has a lot to do with the way people perceive gold. Some view it as any other investment and use it accordingly. The try to generate a return by buying gold for a specific price only to sell it for a higher one. Some would argue that trading currency for gold in the hopes of one-day trading it for more currency defeats the very purpose of gold ownership.
Owning gold and saving in it should act as an insurance policy against potential failure of currency. Instead of viewing it as an investment and means to an end, gold should be thought of as a type of savings and a long-term preservation of wealth. A currency might lose all its value, but gold will never be worthless.
Saving in gold
Gold has been used as a basis of value and a focal point of saving wealth for thousands of years. Aristocrats in Europe, oil barons in the Middle East and the ultra-rich families from around the world have preserved their generational wealth by saving in gold. They don’t bother themselves with making a return on their investment because they use gold as a long-term carrier of value that can’t be printed and controlled by central banks like any ordinary currency.
As currencies continue to fluctuate, gold represents a safe-haven against a system-wide monetary collapse and in case it actually happens, having your wealth stored in gold is an excellent survival strategy. Since it’s denominated in traditional currency, the price of gold might vary, but its value will hold over time regardless of the current and future economic state.
Gold as a hedge
The act of preserving wealth through gold is important in economic environments where investors have to deal with a declining currency and a rising inflation, due to increasing commodity prices. Throughout history, gold has been used as a hedge for safeguarding against either of these situations. Every time investors have realized that their paper currency is starting to lose its value, they have positioned their investments in hard assets such as gold, which has maintained its overall value.
Today, the global price of gold is tied to the U.S. dollar and as it declines, gold keeps gaining value. There are two reasons behind this. Fist, those who buy gold, such as centrals banks and private investors, need to sell their dollars in order to make the transaction. This drives the dollar down because global investors now have to diversify into other currencies. Second, as the dollar weakens, gold becomes cheaper for those holding other types of currencies, resulting in an increased value of gold due to the demand for transactions using said currencies instead of the dollar.
Investing in gold
There’s a couple of different ways you can invest in gold. Two of the most popular choices for those who are hesitant about investing in physical gold are ETFs or gold exchange-traded funds and mutual funds. Mutual funds hold more than one portfolio of gold stocks of companies that mine gold. These are often established mines capable of producing a specific amount of gold per year. ETFs represent a type of mutual fund that is traded on stock exchanges like a traditional stock. Lastly, there’s physical ownership of gold in the form of gold bullion or gold coins. Physically owning gold is ideal for saving it and but it offers very little benefits when it comes to turning a profit.
Adding gold to your investment portfolio is a long-term, risk-reducing form of saving wealth regardless of the different portfolio classes, investor backgrounds or paper currencies and their fluctuating values. Using it to generate a larger profit is simply a bad business move and can easily result in you losing your entire wealth. Investing in various stock might be a better option when it comes to making a return on your investment and a far safer one for that matter. For accumulating and preserving generational wealth, however, gold was, is and certainly will be a standard.