People invest in gold for their own reasons. Some do it to preserve their own wealth, there are others who do it to actually increase their wealth and many managed it in the past with much success. There are tens of reasons to invest in gold and in this page I will present to you my top nine.
1-Gold has a history of holding its value unlike paper currency, coins, or other assets, gold has maintained its value throughout the ages. People like to invest in gold because, they see gold as a way to preserve their wealth from generation to generation. In reality, gold is a hedge against inflation. Its price tends to rise when the cost of living increases. During the years of highest inflation after World War 2 (1946, 1974, 1975, 1979, 1980,) the average real return on the Dow Jones Industrial Average was -13,33% compared to +130,4% for gold.
2-Limited supply due to increased wealth in emerging markets, which has resulted to increased demand, this may result in supply constraints boosting the price of gold. India’s appetite for jewelry and China’s appetite for gold, to build up reserves to back the yuan, which the country wants to serve as a world major currency.
3-Gold is a hedge against geopolitical uncertainty and that is why it is called “crisis commodity,” because people flee to its safety,” when world tensions rise it outperforms other investments. It also does well when confidence in governments is low.
4-Portfolio diversification. Gold has always played an insurance role in portfolios for various reasons. (global disaster, inflation,war etc.) Now its against the possibility that bankers will not be able to unwind all of their debts without creating big problems.
5-Gold is money. No matter where you go, if you have gold is like having money, you can exchange it right away,in some countries it’s easier to exchange gold, rather than local or certain currencies.
6-Gold unlike fiat currencies is not a claim on someone else’s liability. Gold has never lost it’s value for exposure to mismanagement, corruption, theft, war etc. There has never been (and never will be) a haircut to gold, as its been happening with with debts and savings.
7-The war on cash. Interest rates are negative in many places in the world including Europe and Japan. Central bankers like Mario Draghi, and Christine Lagarde are been called to eliminate high denomination bills. There is a war on cash, and a war on savings and people are seeing it now and they are looking for other options to preserve their savings.
8-Loss of confidence in central bankers. Unfortunately the central bankers did not reform their banks and their operations. The Europeans and Japanese are trying to stimulate growth by negative interest rates and in the US, the Federal Reserve backed away from the December 2015 policy to increased interest rates in 2016. The biggest issue is of course, how they will deal with all their debts after years of quantitative easing in the form of bond purchases. It looks like we are all-lab rats in their grand experiment.
9-The weak dollar. Gold moves in the opposite direction of the American dollar and the dollar is still weak, even though as we speak it is surging forward. President Trump isn’t joking, as many of us thought during his presidential campaign. He has started with a number of policies that will definitely have a positive effect on the US economy, at least short term and the dollar likes it. If the dollar continues to surge forward, soon we will be talking not about the weak dollar, but about the strong dollar.
2019 More reasons for gold to rise
2019 is the year which presents a great opportunity for gold due to unpredicted circumstances.
- There is a number of conflicts that could escalate and drive gold to significant heights. The Hong Kong issue, the North Koreans are back with their efforts to develop nuclear weapons and the US and Iran conflict.
- The trade war between United States and China
- The overvalued and overpriced markets
- The world global debt bubble.
- The covid-19 effect on global economy
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