Gold has stood the test of time as an investment vehicle. Humans have searched for precious metals for thousands of years, and interest in investing in gold seems to be growing. If the demand for gold increases, the price of gold may also increase.
Right now, though, inflationary conditions are also undermining the value of the dollar. So, it can be difficult to protect your cash from losing purchasing power.
Given the continued inflation in today’s economic environment, you may be wondering if it’s smart to convert all your cash savings into gold. In short, the answer is probably no, but it might be wise to invest some of your money in precious metals. Here’s what you need to know.
Should you convert your cash savings into gold?
There are a few reasons why you might want to think twice about converting all your cash savings into gold. For starters, your cash is an important source of funding for emergencies. Although gold is liquid, you may not be able to immediately convert it to cash — limiting your financing options in an emergency. And, financial markets are cyclical. This means there are positive and negative cycles to consider. If you need money in a downward trend in gold, you may face significant losses.
Then again, it might be smart to invest some of your money in the yellow metal. But, “less than 5-10% of a portfolio should be gold,” says Alex Blackwood, CEO and co-founder of Mogul Club. “You can hedge inflation, but when looking for higher returns, look for something with equity value.”
Find out how easy it is to add gold to your portfolio today.
Reasons to add gold to your investment portfolio
You probably shouldn’t convert all your cash into gold, but there are obvious reasons to want to add some precious metals to your investment portfolio. These include:
Gold is a diversification tool
Gold has little in common with the assets you’d typically find in an investment portfolio—like stocks and bonds. As a result, when stock and bond prices fall, investors rush to gold in an attempt to protect their portfolios. An increase in demand usually drives up the price of gold – gains in the precious metal offset losses in other assets.
This diversification value often means that when you invest in gold, you are able to increase your portfolio’s risk-adjusted return.
Gold offers a hedge against inflation
Inflation can be detrimental to your investment portfolio. After all, if your money does not provide a return that is at least equal to the rate at which prices are rising, it may lose purchasing power. Unfortunately, many safe investments – especially those with interest-based returns – fail to keep pace with inflation.
Gold is a unique safe haven because it acts as an inflation hedge. This is due to the historical tendency of gold prices to rise when the dollar depreciates. Thus, precious metals can help maintain value in your portfolio during times of high inflation.
The price of gold may increase further in the future
With prices nearing $2,030 an ounce, gold is trading near record highs. This is a clear indicator that precious metals are in demand. And, this is important because the economic principle of supply and demand is a major factor in the rise in gold prices.
If the demand increases, the price of gold may increase. So, adding precious metals to your portfolio now allows you to take advantage of any potential gains ahead.
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Converting all your cash savings into gold is probably not a good idea. After all, doing so can make accessing cash a challenge in the event of an emergency. On the other hand, chances are you could profit by allocating at least some of your investment assets to precious metals. Compare your gold investment options to add the precious metal to your investment portfolio now.
