Pretty much everyone knows that Gold is one of the most valuable metals in the world, right? Or is it? Is Gold a safe investment? If we look at the history of investing in Gold, we will find that even when stocks were struggling Gold was holding its value very well. However, that does not state whether it will be a safe investment for you personally or not.
So, if you are planning for your next potential investment and want to consider Gold, then this article will cover everything you need to know. Here, we will cover details about the history of Gold as an investment, factors that make it a good option, along with risks and comparisons to other investment opportunities. Stick with us to get an in-depth understanding about “is gold a safe investment” or not.
Historical importance of Gold as an investment.
Over the centuries, Gold has been considered a symbol of wealth and a very important type of investment in all cultural economies around the world. Historically, Gold’s value stems from its physical properties:
These characteristics made it a perfect instrument of trade and store value, which resulted in its utilization for mintage and as benchmarks to monetary systems such as the gold standards. This attraction to Gold grew at extreme times such as war, economic depressions, and periods of inflation when the confidence in governments and paper money declined.
Investors have looked to Gold as a buffer against inflation and a safe option where they value its permanence and durability. Gold’s history during difficult times has established it as a crisis commodity.
Hence, it results in generating the interest of wealth-preserving investors who are looking to hedge against economic uncertainty and currency depreciation.
Is gold a safe investment? Let´s look at some factors
Whether you invest in stocks, bonds, real estate, or any other investment opportunity, you must understand what factors make it a safe investment. So, is Gold a safe investment?
The factors elaborated below explain what makes Gold valuable and a safe investment option.
1. Unique qualities of this metal that are not present in other metals
The first factor that makes it a safe investment is its unique qualities. Gold is one of the most malleable and ductile metals. This quality makes it highly attractive since we can turn it into different forms. These are the qualities that are not available simultaneously in most other metals.
2. High demand in multiple markets and industries
Gold is known to be an important metal for the jewelry market, but it has importance in other markets as well. Gold plays an important role in the tech industry as well. This is because connection points in complex electronics are made with Gold and are gold-plated. It helps to create good electrical connections, so this demand is constantly increasing.
3. Its perception of being a valuable element
No matter which forms of Gold we talk about, it is always considered to be a highly valuable metal. Gold in the form of jewelry or raw Gold in the form of biscuits or coins is always valuable. It hardly ever loses its value due to the form it is in, which makes it a safe investment.
Should you invest in Gold? Understanding the 2 main types of investments
Is Gold a safe investment? For many people, the answer to this question will depend on the type of investment they make. There are two main types of investments, including short-term and long-term, and gold acts differently in either one.
1. Short Term Investments
Short-term investments are those that involve high risk, but they promise high returns as well. Gold is not a good choice for making your short-term investments since its value does not appreciate quickly. So, if you are planning for a short-term investment, then Gold may not be the best choice for you apart from securely holding its value.
2. Long Term Investments
Long-term investments are those where you don’t require short-term high returns, but you may expect the returns to be significant after a long time. Gold makes a good investment in this case. It is because it hedges against inflation very well. While other investments may end up in a loss, Gold can make up for that.
Top 8 reasons to invest in Gold
Whether you are up for a short term or a long-term investment, Gold will offer you multiple benefits of making this investment. Here are our top 8 reasons why you should invest in Gold:
1. Gold is known to hedge against inflation
Is Gold a safe investment? Yes, it is among those few investment options that can hold their value against inflation. It means that inflation may depreciate the value of other investments. In that case, Gold will either bring profit or, in the worst case, it will maintain its original value.
2. Economic uncertainty does not highly impact Gold.
Stocks are the most common way of investing. The bad thing about them is that economic uncertainty can impact their value. That’s not the case with Gold since these economic uncertainties don’t significantly impact its value. Is Gold a safe investment during times of economic uncertainty? Yes!
3. Investing in Gold can diversify your investment portfolio
It is always a safer option to have multiple investments in different fields. If you only invest in one type of your risk will significantly increase. So, you must diversify your investment portfolio. Gold brings a great option to do that, and it brings a unique way of investing as well.
4. Gold has a limited supply and an increasing demand.
It is a metal that we get from mining the earth. So, it is understood that its supply is limited. On the other hand, the demand for Gold is constantly increasing. It is used in various fields of life, making it an attractive investment. Is Gold a safe investment, then? Yes, limited supply with increasing demand makes it a safe investment.
5. It is a tangible asset.
Unlike other modern-day investment opportunities, including crypto, stocks, etc., Gold is tangible. It means that you can physically touch and feel it. That offers a significant peace of mind for people who don’t like to invest in options they cannot hold or control.
6. Gold is immune to currency value devaluation.
Stocks, bonds, and even real estate are the assets that often lose their value when the currency devaluates. Although they maintain the same value, since the currency is devaluing, their value also decreases in the international market. That’s not the case with Gold since it is immune to currency devaluation. Gold holds its value very well in the international market.
7. It always holds a high potential for capital appreciation.
Most investments and assets do not hold high appreciation potential. It is because their value may decrease at any time. That is not the case with Gold, as it holds a high potential for capital appreciation. A slight increase in its demand can significantly benefit you. Is Gold a safe investment? What makes it safer is that its value is not going to decrease a lot in a short time.
8. Gold offers good liquidity when bought in the right form
When you buy Gold in the right form, like coins or biscuits, you will enjoy high liquidity. It is because those forms are always in high demand, and whenever you want to sell your Gold, you may not find any huge hurdles in your way. At the same time, you may get good offers for your Gold, making this process simple.
Risks and Downsides of investing in Gold you must know about.
Regardless of all the benefits discussed above, Gold still comes with several risks and downsides as an investment. So, before you decide on is Gold a safe investment or not, you must consider the following downsides of investing in it.
1. Additional costs for insuring and storing Gold
When investing in Gold, you must consider additional costs like insurance and storage costs. Most people don’t consider these costs and end up at a loss due to this investment since the profit in their case may not cover these costs.
2. Gold lacking interest, yield, and dividends
Unlike other investments, gold does not provide interest, yields, or dividends. So, if you want an investment that helps you earn through those, you may skip Gold.
3. Certain forms of Gold are not good in terms of liquidity
If you buy Gold in the wrong form like in the form of some jewelry, then you may face issues in liquidity. It is because when selling it the value will depend on buyer interest and their offers. So, wrong forms of Gold can make the answer No to “is gold a safe investment”.
4. Investing in Gold may make you miss other high-growth investment opportunities.
While you are putting all your investment capital in Gold, it may make you miss other investment opportunities that may hold high return and profitability potential. It is a huge downside since you cannot gain huge profits from Gold in a short time.
How does Gold compare against other investment options?
While considering the performance of Gold compared to many other investment opportunities, we need to assess various features such as risk and liquidity. Gold is very famous for being a safe investment that can protect against inflation.
It is often moving the opposite way as compared to what happens in the stocks. This makes it an ideal portfolio hedge, thereby lowering the overall risk.
As opposed to stocks and real estate, Gold doesn’t earn interest through dividends or lease money that allows the investors to gain permanent profits. This could be a disadvantage for those who are looking for a consistent income.
As for liquidity, Gold is relatively very easy to trade compared with the extreme liquidity of stocks and government bonds. The real estate market offers greater returns, but it is also less liquid and more expensive for the end user.
In the long run, bonds are much less risky, but they offer lower and more consistent returns than Gold. As for the growth potential of Gold, its price rise may be overshadowed by equities in a bull market. Thus, it is used more to protect wealth than to grow aggressively.
Factors to consider when planning to invest in Gold
With all the important factors discussed so far you may have made up your mind if you are going to invest in Gold or not. Well, if you are planning to make this investment, here is a small checklist for you. Considering this before you make your investment will ensure you a safe investment experience.
1. Your main investment goals
When investing in Gold, think about whether it is consistent with your overall portfolio or not. Do you need to preserve your wealth, hedge against inflation or diversify your portfolio? Such understanding of your main goal for the gold investment will determine the strategy you select among physical Gold, ETFs or even mining stocks.
2. What is your risk tolerance for this investment?
You should calculate your gold investment risk tolerance specifically. Gold is a limited investment, and it does not pay any dividends or interest. But suppose you prefer reliable investments aimed at generating income in the long term. In that case, it might be beneficial to reduce your gold exposure or invest in safer gold investment options.
3. How long do you plan to hold this investment?
Consider your investment timeline. Gold can be a great long-term investment, especially as a hedge against inflation and economic uncertainties. For a short investment horizon, keep in mind the Gold’s price instability and liquidity needs in consideration.
So, is Gold a safe investment? Just like other investment options, Gold comes with its benefits and demerits. Remember that Gold is one of the most valuable metals known to man, but that does not necessarily make it a haven investment for everyone.
Before investing in Gold, you must understand your goals for this investment since Gold may not be a great investment always for short-term high returns. However, it may be an excellent option for you to fight against inflation in the long run.
Hope you found this short post to be helpful! If there is anything just leave a comment in the comment section below and I will answer it as fast as humanly possibly!
Michael, founder of Gold Retired