No matter how many eras have passed, investing in gold is still interesting to a lot of people. This is because it is an asset that has a distinctive feature that is very different from other assets. Many people may wonder how gold differs from other assets. Thus, this article has summarized 3 reasons why gold is an attractive asset.
List of Contents
3 Reasons Why Gold Is an Attractive Asset
1. Store of Value
Gold is internationally recognized as a store of value, which can be exchanged for cash. That means gold can be considered a currency. However, the strength of gold is the ever-increasing production and mining costs. This strength has driven the price of gold higher throughout our lifetimes. Besides, as gold is becoming more and more difficult to mine, mining costs are very high as well. As a result, the demand for gold to be used in various industries has never decreased. Especially, the use of gold in the electronics industry increases all the time. This is because gold conducts electricity the best. Thus, if the world still needs technology, the world will still need gold.
2. Precious Metal
Gold is also one of the so-called precious metals, which means economic value. It is an important product of the economy. For example, production in the new industrial world requires gold. Therefore, the price of gold must always be compared with a particular currency. Finally, this is the essence of gold itself.
3. Safe Haven Asset
Principally, gold is still like a safe haven from the inflation crisis. When the economy expands, product prices such as food, housing, and medical expenses will be more expensive. This is because the seller would expect that the expansion of the economy will make people have more purchasing power. Thus, there will be an increase or decrease in the goods price index. To indicate the level of inflation, it can be seen that inflation is the opposite of the value of paper money (Fiat Currency). The reason is that the price of goods increases as the day goes on. Therefore, paper money tends to be used to buy products less.
Why Is Gold Important to the Economy, Including Ourselves?
One of the benefits that the country’s gold trade association has pointed out is that gold is useful as a medium of currency exchange. It is also used as an international currency reserve. This is because gold has its own value. Therefore, it is classified as safe haven assets. Importantly, it is an asset that does not deteriorate much in times of crisis. In contrast to currency, currencies may increase or decrease depending on the economic conditions. Hence, gold is something that can confirm the stability of a country’s economy.
Normally, people may buy gold as a sign of wealth status. Besides, they may buy gold for profit. Moreover, gold is one of the ways investors use it as collateral. or investments with low risk. This is because it has low volatility in value compared to other investments. For example, if the economy tends to slow down, the gold price still has a direction of increasing value. This is because gold is an asset that maintains its value and does not deteriorate. Gold is used as collateral when other assets face high risks or tend to depreciate during economic downturns.
From the mentioned above, it is the answer to why gold represents wealth well in economic, investment, and savings levels.
The Volatility of the Gold Price
Despite gold being known as a safe asset and with less volatility, gold prices can face volatility at any time.
(a) Gold / U.S. Dollar TF. Day
(b) Gold / U.S. Dollar TF. 1M
When considered in the historical statistics, images (a) and (b) are gold prices in the timeframe day and month respectively. There is a period of continuous high volatility, tens of thousands of points. Thus, it is very important to consider, find information, and deeply analyze fundamental factors before investing in gold.
Popular ways to trade the gold
1. Holding gold bars
2. Investment through mutual funds
3. Gold futures trading
4. Gold spot trading
Conclusion
In short, the reason gold is an asset of interest in every era is that it is an asset that is recognized internationally as a store of value. On the other hand, gold prices are highly volatile as well. Therefore, if investors want to invest in gold, they should study and analyze the fundamental factors involved in detail to make a decision before investing.
FAQs
Gold is regarded as an excellent investment for several reasons. First, gold is a safe haven asset that maintains its value throughout economic downturns, making it a great hedge against inflation and market volatility. Second, gold is a finite resource, which means it cannot be easily created or replicated, making it a precious commodity whose value tends to rise over time. Finally, gold has international appeal and is recognized as a store of value in almost every country, making it a highly liquid asset that can be exchanged in any currency.
Several factors, including global economic circumstances, inflation expectations, currency exchange rates, and geopolitical events such as wars or trade disputes, can impact the price of gold. Furthermore, supply and demand dynamics, as well as changes in investor mood and the actions of central banks and other major institutional investors, can influence the price of gold.
In comparison to other commodities such as oil, silver, and copper, gold is seen as a reliable and secure investment. It has a long history as a store of value and is widely accepted as a currency worldwide, bringing additional benefits to investors. However, before investing in any commodity, investors should be aware of the risks and do their own research.
Related Articles:
- The Differences between Investment And Speculation Investors Must Know
- The Principles of Investment Risk Management Investors Should Know
Read more: Commodity
Source: Investopedia