Every investor wishes to have a portfolio that fetches good returns with the least risk. Any prudent investor will have a diverse portfolio of assets comprising stocks, fixed income, commodities, and precious metals.
Out of all these assets, precious metals, especially gold bullion, is the most popular form of investment that is a staple for any good and cautious investor. People have been investing in gold for ages because it is considered one of the safest investments. You can also buy it from a platform like goldbullionaustralia.com.au. Buying it from platforms like goldbullionaustralia.com.au is becoming increasingly popular.
Here are some reasons why investing in gold bullion is so popular:
Gold is Money
Gold isn’t used as currency, but it has been a value store for centuries, just like money. But, currencies lose value over time, but gold doesn’t, which makes it more powerful than any other currency. All major currencies like the US Dollar, British Pound Sterling, and Indian Rupees fluctuate in value, and so does their purchasing power. Still, the values of gold have only increased over time.
No Risks of Bankruptcy
Gold bullion, like bars or coins, is an investment in itself. You hold it in the physical form, and there is no need for any document or formality. There isn’t any other party involved. When you purchase gold bullion, it becomes your property, unlike stocks or bonds, where a corporate entity is involved.
Gold can fluctuate slightly, but it can never get to zero, no matter how hard the times are. It has never happened in centuries. However, with stocks, companies selling the stock can go bankrupt if you lose all your money. This can never happen with gold. Moreover, when crises hit, it can easily be sold for money if you need some liquidity.
Hedge against Inflation
Gold has conventionally acted as a hedge against inflation because its value increases when currency decreases in value. It has been observed over the last several decades that gold prices soar when stock markets plunge.
Also, gold offers excellent value, and people tend to buy gold and store their money in the form of yellow metal when they see their currencies losing value.
Gold mining is decreasing, and today only a few gold mines are operating throughout the world. As a result, the production of new gold from mines is falling year on year. It takes about five to ten years for a new gold mine to get operation. This shortage in the gold supply puts upward pressure on the pressure as per the simple law of economics.
Correlation to Stocks
The key to portfolio diversification is to have stocks that are not closely related to each other. It has become evident over the years that gold has a negative correlation to stocks and other assets. This means when stock markets go up, the value of gold declines, and when stock markets plunge, the cost of gold increases.
Therefore, it is common to combine gold with other stocks and bonds to reduce overall volatility and risk. Therefore, these are reasons enough to say that gold constitutes an essential part of any diversified portfolio. It’s non-volatile. Its prices may increase or decrease in the short term, but it has maintained its value over the long term.