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Benefits of investing in gold

2016-01-03

If you are looking at gold as an investment, it is always a better idea to stick to digital or non-physical gold. The second rule is to ensure that gold should form at most 10-15% of your overall investment portfolio. Here are some merits of investing in gold as an asset class.

  • One of the most important reasons to own gold is that it diversifies and de-risks your portfolio. Even when equity and debt are not doing too great, gold can outperform since it has a very low correlation with the returns on debt and equity.
     
  • Investing in gold is your best hedge against inflation. Typically, you will notice that the value of gold increases with the cost of living.
     
  • Have you wondered why gold has enjoyed long-term value over the ages? The demand has always been more than supply. Unlike other assets where mining can be indiscriminate, gold supply is limited. On the other hand, demand comes from jewellery consumption, industrial applications, hedging and central bank demand. That keeps demand buoyant and ensures prices are on an uptrend over longer periods of time.
     
  • Gold is liquid and flexible. Even if you have an emergency, you can leverage gold by selling or by taking a loan against gold. Gold offers very high LTV (loan to value) ratio at around 80% to 85%. Also, in recent years, with the advent of digital gold vehicles like gold ETFs and sovereign gold bonds, it has become easier and less expensive to hold gold.
     
  • Finally, gold is the king of bad times. Simply put, it is a classic crisis commodity. It manages to retain its value through hyperinflation, deflation, and even natural disasters. Gold normally peaks around times of political strife, economic uncertainty, or a geopolitical crisis.

To sum up our discussion, the market today offers different types of gold investment based on one’s need of convenience, flexibility, and liquidity. No doubt, the benefits of gold investment for your portfolio are undeniable; Investors should look at gold as a long-term investment tool to diversify & balance their investment portfolio.