In todays day and age, many people begin to wonder about the true worth of currency and why it holds a specific value. When you listen to politicians talk about China and how they artificially hold the value of the yuan down in order to maintain their export economy, you wonder why we don’t use a more concrete form of currency like the gold standard and break away from our fiat currency system. Until Nixon became President, Gold was used as a relative standard for different currencies.
Today, gold is considered the most popular of the precious metals in the world. It is used as a form of diversification of assets to hedge against risk.
When the financial crisis occurred this past decade, it became very common for people to start investing in gold because of the fear that rapid inflation would deflate the value of the dollar making it essentially worthless. The worth of gold today is determined by its supply and demand like commodities. But unlike other commodities, gold is not something that is really consumed, but is rather held as a form of savings.
So, what is the value of gold? That depends. Since gold’s worth is determined much like commodities, but has no use, it is tough to say. People speculate that gold will be the backup currency in the event of another world financial crisis. So depending on what you believe, gold could be actual security blanket, or it could simply be a worthless investment. In this article, you will find four different reasons to own gold.
Holds Its Value
Gold is known for holding its value over time. Historically, paper currency was backed by gold, so holding it had actual value. It is a good way to pass on wealth from generation to generation, knowing that it will always hold some sort of value.
While governments can increase of decrease the supply of paper currency, gold’s supply remains constant. Gold has been a great hedge against inflation because of its price fluctuations relative to the cost of living. During years of high inflation, gold has seen it’s prices soar.
A Weak US Dollar
As stated earlier, the supply of gold is essentially constant. When the demand of gold rises, so does it’s worth. During years when the US Dollar is weak, the demand for gold rises, making your holdings worth more. This was evident at the turn of the century when the US Dollar fell compared to other world currencies.
When investing your money, one thing every person emphasizes is diversity is investments. Gold fits in nicely to most portfolios because it is not closely correlated to most things you would typically be investing in. It is actually has a negative correlation to things like stocks. By adding gold to your a portfolio of stocks and bonds, you can reduce the risk and volatility of your investment portfolio.