Is Gold a Wise Investment Choice?
While there’s no such thing as a sure investment, there are some assets that are historically referred to as ‘safe haven’ assets.
Take gold, for example, which always plots a predictable course from a price perspective and is considered by investors to be a genuine safe haven asset.
But what makes gold such a safe investment, and how is its real-time price impacted in the marketplace? Let’s find out!
What Makes Gold One of the Safest Investments in the World?
One of the most alluring aspects of gold from a risk-averse perspective is its ability to act as an effective hedge against inflation.
The main reason for this is that its price tends to rise as the cost-of-living increases, with gold prices typically soaring (while stock market valuations plunge) during periods of high inflation.
In June, inflation in the UK reached a 40-year peak of 9.4% (up from 9.1% in May), while the value of gold has increased sharply and peaked at £1,501.66 on June 22nd. This perfectly embodies how gold can be used to help investors hedge against inflation, as fiat currencies see their purchasing power depreciate and gold emerges as a more superior source of value.
Similarly, gold provides protection against deflation, during which time prices decrease and business activity slows against the backdrop of growing an excessive debt.
What Impacts the Price of Gold?
As you can probably tell, there are several factors that impact the price of gold. Some exist outside of longstanding factors such as supply and demand, with gold retaining additional value that sets it apart from other commodities.
So, while the price of gold is heavily influenced by mining production (which has largely levelled off since 2016), there are a number of other factors to keep in mind.
For example, as a viable hedge against inflation, gold often moves in the opposite direction to the US dollar, so USD weakness can precipitate a significant hike in the value of this precious metal.
Industrial demand also remains a key driver of gold prices, accounting for approximately half of all global demand (which totalled in excess of 4,400 tonnes in 2019). So, in instances where this declines, so too does the total value of gold.
What Are the Best Ways to Invest in Gold?
The question that remains, of course, is what are the best ways of investing in gold? Well, we’d argue that the best investment vehicles are speculative by nature, as they enable you to profit from both peaks and troughs in the real-time price.
For example, you can invest in gold by spread betting on XAU/USD, enabling you to simultaneously leverage the speculative forex market and minimise the tax levies applied to your total returns.This offers you far greater flexibility as an investor, while it also makes it possible to unique advantages of assets such as gold and derivative (and highly leveraged) markets such as forex.