Gold over the years has been considered one of the oldest ways people have accumulated and protected wealth. Some of the benefits of owning gold include protection from default risk, diversification in your portfolio, gold as a store a value and a way to hedge against inflation.
Feb. 13, 2012
JS Online
(ARA) - Throughout these past several turbulent years, you have likely heard about investing in gold. Even with the increased exposure gold investments have received - as well as its place as one of the oldest ways people have accumulated and protected wealth - many Americans are still in the dark about the basic reasons why investing in this precious metal is important to their future.
A substantial number of Americans own gold in some form, but few are aware of the benefits of investing in it. In fact, almost half of Americans surveyed say they would like to own gold but don't know enough to make an investment, according to a recent survey by the World Gold Council. "Americans are rediscovering gold as an asset class. Gold has a role to play in all of our financial futures and with the many investment options available today anyone can access the gold market," says Jason Toussaint, Managing Director, U.S. and Investment, at the World Gold Council.
For centuries, particularly during times of financial stress, investors have sought to protect their capital in assets that offer alternative stores of value. As one of the few financial assets that do not rely on an issuer's promise to pay, gold provides protection from widespread default risk. It also offers investors insurance against extreme movements in the value of other asset classes.
Here are a few reasons you might consider making gold part of your investment portfolio, courtesy of the World Gold Council:
* Diversifying your portfolio. Having a healthy mix of assets in your portfolio can help protect you from market fluctuations that affect one type of investment more than others. Including an allocation to gold can enhance the overall diversification of your portfolio since it tends to move in the opposite direction of most other asset classes.
* Potential for price appreciation. Gold is often thought of as a stabilizing force in your portfolio, but there's also plenty of potential for gold to help your portfolio appreciate in value. In the past decade, rising demand for gold in emerging markets like India and China has led to an increase in gold's value.
* Hedging against inflation and currency fluctuations. Throughout history, gold has remained relatively stable in terms of its ability to buy goods and services while the purchasing power of other currencies has fluctuated. Gold is particularly effective in insuring against a possible decline in the value of the U.S. dollar versus other currencies.
* Managing risk. Gold's unique characteristics can help protect against sudden and unexpected risk. Looking at past events typically considered major and unexpected risks to a portfolio, the World Gold Council found that in 18 out of 24 cases, analyzed portfolios which included gold outperformed those which did not.
* Constrained supply and growth in demand. There have been three traditional sources of gold supply: mine production, recycled gold and central banks. Mine production has remained flat despite billions spent on discovery and development of new mines and recycled gold remains a small but important source of supply. The third traditional source of supply - central banks - has become a source of demand, as they've become net purchasers of gold after two decades of sales. During this same period demand has risen rapidly, primarily driven by India and China which represent more than half of total global demand. By comparison, North America pales at just 13 percent of demand.
More information about how the gold market works and investing in gold can be found at www.gold.org.
The information provided is for educational purposes only. Consult your financial advisor before making any investment decisions.
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