It was not very long ago that everyone was talking about gold and the profits that were being made. Then gold entered a short period of consolidation and the price declined.
Starting this year, that trend began to reverse again, and gold has been on the rise, gaining more than 20% so far this year and easily outperforming the stock market indices. That being said, here are some of the reasons why adding gold to your portfolio makes sense.
1. Gold Is Limited in Supply
The thing with gold is that there is only so much to be mined in the earth. Most of the supply of gold that has been traded since the 1990’s has come from the vaults of central banks. During this time the mining of gold has also decreased for a variety of reasons. No one can just create more gold if they want to. This natural supply limit helps gold to maintain its value and perform even better when demand rises.
Gold is something that everyone should incorporate into their investment portfolios, and yet many still miss it. It’s not easy to buy physical gold for your retirement account. Unfortunately, it’s this limitation that prevents most investors from benefiting from the protection that gold provides when stocks and bonds are plummeting. Gold tends to perform well during periods of global economic uncertainty or financial panics. The last financial crisis proved to be no different, but investors with gold holdings limited their total losses.
3. Deflation Protection
Similar to the case for inflation presented earlier, gold tends to perform well during deflationary periods as well. While the price of gold may not increase as much as in a hyperinflationary economy, its purchasing power tends to increase relative to other goods and services. This means that you still get wealthier even with less price movement.
In fact, during The Great Depression, the relative purchasing power of gold soared while other prices dropped sharply.
4. Inflation Protection
Over the past 50 years, investors have seen gold prices soar and the stock market plunge during high inflation years. It’s a fact that something will eventually give from this long period of low and even negative interest rates. If inflation takes hold and we enter into a period of hyperinflation, like has been seen in Zimbabwe, Germany and Argentina in recent times, gold will perform very well. In fact, gold is a top performer in hyperinflationary environments where citizens are getting rid of their local paper money at a record pace. One tried and true assurance that they turn is to gold, and this increased demand drives gold prices higher.
5. Gold Is an Historical Chaos Hedge
No other asset has performed better during periods of uncertainty than gold. Whether it’s a financial collapse, world war, epidemic or some other chaotic event in the people’s eyes and minds, one thing hasn’t changed, and that is how people respond to these events. Buying and hoarding gold is one of those common responses and this causes gold prices to soar. If today’s current events worry you, owning some gold is a good choice.
Although the information in this commentary has been obtained from sources believed to be reliable, Peloton Minerals does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. Peloton Minerals will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided in this article is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.