Why Gold

Since it’s discovery thousands of years ago, Gold has been accepted as the definitive global currency and symbol of wealth and prosperity.  In the recent decades, gold became the favored refuge of sophisticated investors looking to diversify their portfolio and hedge their investments against other volatile financial instruments. Today’s unprecedented political and economic uncertainties further bolster the reasons to consider gold and other precious metals as part of your long-term investment strategies.

Hedge against the falling value of the US dollar

The purchasing power of the US dollar continues to erode due to massive US trade imbalance and US government budget deficits. The recent government bailouts of major American corporations saw the sudden injection of billions of dollars into the US economy will further escalate the dollar’s declining value. Since the values of gold and US dollar have been inversely linked, today’s falling dollar should see gold prices rise.

Hedge against inflation

Unlike other types of currencies, the value of gold has remained relatively stable for the past century. As economies expand, governments inject liquidity to sustain the grown, but normally end up supplying more money that what is required. This oversupply causes inflation that in turn devalues the currency and diminishes its purchasing power. Investors often turn to gold to counteract the negative effects of inflation.

Hedge against geopolitical strife and economic uncertainty

Gold is like owning an option against an unforeseen future. It provides a form of insurance against some improbable but, if it occurs, highly damaging event. Such events might include war, an unexpected surge in inflation, generalized crises leading to repudiation of foreign debts by major sovereign borrowers, a regression to a world of currency and trading blocs, or the international isolation of a country.

Gold will always have an intrinsic value

Gold is also said to be a “store of value” that holds up better than financial assets during periods of deflation and rampant inflation. The values of all other financial instruments change, but gold itself is immutable and unchanging and will always hold real value.

Portfolio Diversification

The addition of gold to a portfolio brings significant benefits in risk/reward terms. This is because returns on gold tend to be negatively correlated to other financial assets. It therefore provides investors with a powerful risk management tool. Including gold in portfolios is likely to enhance the consistency of performance by reducing overall portfolio volatility, particularly during periods of stress in the financial markets.