Whenever the economic situation turns uncertain and people are worried about their equity and currency investments, they turn to gold for hedging their risk. Gold is not just a metal but also a very important financial commodity. Gold is something that remains under the ownership of the investor, and the value of gold is also rarely likely to decline in case of economic recession.
Ever since the price of gold hit a record of three decades, the belief of people about gold being the perfect inflation hedge has strengthened even more. While currency is subject to inflation, gold is not. With the increasing significance of gold as an investment commodity, it is not only the people who are investing in it, but also countries and companies.
LaTely, the Chinese government has been putting parts of the trade surplus into gold. This has not only increased the demand of gold worldwide, but the value of gold has also surged. Basically, people are buying gold as a hedge against economic crisis because they are aware of the fact that during the time of crisis, the price of gold rises, hence offering a reasonable amount of return.
The primary reason for the production of gold is accumulation. This is what makes the metal very important in terms of value and return on investment. We all know that money is printed keeping the gold reserves in view and hence, gold is money. It is a perfect store of value, and the more the level of acceptance and use and demand of gold, the higher the value of gold is likely to go.
Gold tends to be the perfect investment and inflation hedge. While all other commodities are going to impact you negatively because of inflation, value of gold will actually rise, it increasing your chances of getting a high return.
It is evident that anyone who possesses investments in gold is likely to have more power and is likely to reap the benefit in the form of high returns. This is because investments in equity and other commodities are likely to loose their value considering in time of a liquidity crisis or any other kind of economic crisis.
Gold is an attractive investment because it is not subject to any particular laws like other investments in the stock market, currency or commodities, which are strictly regulated. For those people who have investments in other financial instruments and commodities, gold can act as the perfect diversifier for the investment portfolio. The basic purpose of the diversification of an investment portfolio is to invest in different kinds of instruments in order to reduce the risk, so that the return does not become negative in case of a crisis.
Gold is considered an asset by the holders because it remains to be the most strategic store of value. This is mainly because gold would always maintain its intrinsic value, which significantly increases the benefit of the investors and enables them to capitalize on the effects of inflamation on gold.