The Benefits Of Investing In Gold

Gold is an effective hedge against inflation, uncertainty and a weakening currency.

Why Invest In Gold?

Gold mutual funds and other gold investments have their ups and downs like any other investment but over the long term, they have performed well as a hedge against inflation, or the increases in the cost of living, and most significantly of all, as a safe harbor in times of financial or political uncertainty. Gold is also purchased as protection against a weakening currency as its price is not dependent on any currency, including the dollar. For instance, the US Dollar has lost 95% of its purchasing power since 1913! This makes gold an attractive asset to own over the long term, whether you own it in gold mutual funds or any other gold investment.

Financial experts recommend as a rule of thumb that anywhere from 5% to 15% of your portfolio should be invested in commodities such as gold mutual funds for diversification purposes. The exact percentage will depend on how much risk you are planning to take overall but the minimum recommended is 5%. Part of the reason for the diversification recommendation is the fact that as a separate asset class, gold has a low correlation with other financial investments such as stocks and bonds. This simply means that gold prices are not technically dependent one way or another on the financial markets. This may reduce the overall risk of your portfolio over the long term by reducing its price swings. For example, if stock prices go down, gold will not follow suit automatically and may actually go the other way, providing a cushion for your portfolio.

Gold is also used in industry because it is easy to work with, conducts electricity efficiently, does not corrode, can be drawn into wire, hammered and rolled into very thin sheets, molded and stamped into complicated shapes and alloys with other metals easily. In fact, few other minerals are as useful as gold. As a result, it is used in all forms of electronics from cell phones to computers, with some gold in almost every electronic device. The use of and demand for gold is only going to go up because this industry is on a growth path.

Finally, gold is and has always been a sought after asset that denotes wealth in all cultures and is therefore always in demand, regardless of price. It happens to be a very attractive metal and has always been used widely in jewelery. In many cultures, it is in fact carried around on ones person in the form of jewelery and denotes the social standing of the wearer. As with any other asset, when the demand for it goes up much faster than the supply (as it has recently), the price of gold goes up. Over the millennia though, gold has always increased in value.

For these reasons, gold in its various investment forms, including gold mutual funds, deserves a place in every investment portfolio.