Why People Think Gold as Safe Investment?
Buying gold is the ancient kind of investing concept and the one has become common and on which opinions are most polarized. There’s the traditional Indian view of gold—it is an excellent passive investment, protection in bad times and households should invest in it. Hence gold is seen as easily bought and easily liquefied asset that can be relied upon to appreciate in price with time.
The second view is that gold is a commodity to be traded like other commodities. This is the view taken by punters and traders but is the least relevant to the individual saver.
The third view, which I think makes the most sense is that the gold can certainly be viewed as an investment; but
it’s just not a very good one. Not only do the returns tend to be poorer than other investments, there are fundamental reasons why this will always be the case.
Although it is no longer a primary form of currency in the developed world, gold remains a popular investment for a number of reasons.
- Liquidity. Gold can be easily converted into cash anywhere in the world. Aside from actual cash, the liquidity and universality of gold is unparalleled.
- Holds its value. Gold tends to maintain its value over time. Economists argue that even the price of gold is not indicative of its value. That is, even if the price decreases, the underlying value of gold does not change much. This is largely because there is a fixed quantity of gold due to the fact that it is a commodity, whereas the U.S. dollar, which is a form of fiat currency, holds no inherent value.
- Hedge against inflation. Gold rises in value when inflation takes hold. Since gold is priced in U.S. dollars, any deterioration in the dollar will logically lead to a higher price of gold. As a result, during inflationary times, gold offers a much more stable investment than cash.
- Diversification. Adding different securities to your portfolio is an essential way to diversify and lower the overall risk of your investments. Moreover, because gold often moves inversely to the stock market and currency values, it provides an especially effective way to diversify.
- Universally desired investment. Gold is still a universal commodity. Although countries sell their currency futures, treasuries, and other securities around the world, unlike gold, they are subject to political chaos.
- Gold is used as an input in products. Since gold is used in the production of various products including jewellery and electronics, there is a reliable demand that further stabilizes the price of gold. Moreover, in times of increased demand, these markets can force the price of gold higher.