Gold has been used in different human civilizations as a measure of value. Years before the formation of fiat currencies, this precious metal was being used as an exchange form and as a way to store wealth in different regions around the world. This ability of gold to break geological boundaries and be an essential commodity in the financial market has made it maintain its value to date.
Many businesses around the world are currently opting to keep part of their financial portfolio in gold. Some global central banks also require commercial banks in their countries to hold some of their financial reserves in gold. This highlights its importance as a source of wealth and a measure of value. But, gold has proven to be not just a measure of value, but it also has many benefits to investors, like preserving capital.
How Gold Can Preserve Your Capital
Gold has a rich history in the financial market and has proven several times that it's the go-to commodity for any business. It has outlived various economic crises, and, as an investor, having gold could help protect your capital.
Here are several ways gold could help your business:
1. It's Less Volatile Than Other Commodities
Volatility in the prices of stocks and exchanges is a significant risk that investors face. Prices of stocks and other exchanges frequently change, making it hard for traders to make profits. While experienced traders fancy this volatility as it provides them with an opportunity to make money, volatility isn't something to go by for risk-averse traders.
Gold usually has a steady demand and supply, therefore, making it a more stable commodity. These low fluctuations in the gold mean that if part of your capital is in gold, the value won't be greatly affected by the ever-changing market scope.
2. It Keeps Value During Crisis
Gold is safe from global tensions and uncertainties. During disasters, diplomatic rows, or wars, gold's value doesn't change as its value remains the same globally, regardless of what's happening in a particular region.
Fiat currencies will shift in value relative to the dollar during such occasions, which may also decrease their purchasing power. In such cases, gold's stability will be a haven for most investors before things return to normalcy. Holding your assets in fiat currencies could mean losing your business value. However, gold will preserve your investment value through such moments.
3.Diversify Your Portfolio
When investing in a trading portfolio, one way to increase your returns is investing in commodities that aren't correlated. This means that the shift in the price of one of them shouldn't directly move the price of the other in the same direction.
In history, a crash in stock value has always been matched with an increase in the gold value. Holding gold in your portfolio when other financial commodities crash in value will help your business keep its value. The rise in gold will cover the deficit experienced in the other commodities.
4. Hedge Against Inflation
Inflation always occurs when a currency loses its value and purchasing power. This usually causes a higher cost of living. When holding your assets in the said currency, they’re prone to losing their value relative to the dollar.
However, the trend in the value of gold indicates that the value increases as the cost of living increases. Gold, like other commodities, is priced on the value of fiat currencies; therefore, if fiat currencies lose the purchasing power, more units are required to purchase gold. If an investor has gold, inflations won’t affect the business as the value will remain the same or even increase.
5. Protection Against Deflation
Deflation occurs when prices of goods significantly drop and fiat currencies gain much purchasing power. While these could be good to consumers, these are usually a disadvantage to sellers. During deflations, due to the purchasing power of fiat currencies, people could decide to exchange cash for gold.
The high demand for gold could mean that its price increases while other commodities and stocks decrease. At first, the price of gold will decrease, but it will find a baseline and pick up quickly. For investors with gold assets, their business will recover much quickly during recession.
6. Ability To Keep Value
For a commodity to increase its demand, there should be a regulation on the supply. Gold has this property of maintaining its value due to the hardship of finding mining pools and setting up equipment.
The industrial use of gold has also been limited to jewelry, therefore, regulating the demand, and, in turn, limiting the need to explore mining options. Gold is, therefore, insulated from industrial recession, and the demand and supply are almost steady. These constraints help gold maintain its value over time. Having gold as part of your portfolio will enable you to maintain the value of your business and preserve your capital.
7. Stable Interest Rates
There are cases wherein federations keep interest rates at minimal for other commodities, such as bonds. For investors who seek to make profits through interests from secure investments, gold could prove to be a better option.
While treasuries and bonds are also safe commodities, investors can't get many returns from them if there are regulations on the rates. However, rates from gold are usually stable and not subjected to government regulations, allowing investors to make good returns from their business capitals.
8. Protection From Weakness Of Fiat Currency
Currencies are prone to weaken compared to other currencies. This could be caused by economic factors that single investors can't control. If an investor has assets in fiat currencies, weakening could mean that the overall value of the business drops.
In the years when there were cases of the dollar weakening compared to other currencies, the price of gold increased several times. This was positive to gold holders as their value increase was proportional to the value of the gold. Gold can, therefore, shield your capital and business against the susceptibility of fiat currencies to weakness from time to time.
9. A Good Human Perception
For centuries, gold has been a standard measure of value. This has led it to gain popularity and great perception among people. When you have gold as part of your business, it can increase the value of the business and bargaining power when negotiating for loans.
People are more likely to associate gold with success, wealth, and class. These good reviews that gold will bring to your business will come in handy as people will be more likely to be part of your business. More people, in turn, will bring success to your business, and this would help you maintain your investment.
How To Acquire Gold
Once you realize the benefits that gold offers your business, and want to purchase or invest in it, there are different ways to do it. These methods involve acquiring financial portfolios or gold bullions. The major ways through which people and business can purchase and store gold include the following:
Buy Gold Bullions
The primary physical forms of gold are coins, bars, and jewelry. Investors can choose to purchase gold from reputable companies and gold auction sites. When buying gold, you should always check on the quality and ensure you're buying pure gold. This is crucial when measuring the value of gold during sales.
Other costs incurred when buying physical gold are insurance, delivery, storage, and security charges. Gold doesn't corrode, and, hence, the storage cost won't be high, although it will require maximum security.
Invest In Exchange-Traded Funds
An exchange-traded fund (EFT) is a type of security exchange that tracks the price and spot indexes of gold, just like the stock market. It's one of the best ways to hold non-physical gold. The gold can be traded in an open market or held for a price rise. Because EFTs require a trading broker, the costs incurred are the brokerage fees and other minor transactional charges.
Invest In Shares
Investing in gold mines is a more volatile way of acquiring gold. Profits depend on the price, quality, and the cost of production. Income is closely linked to the gold price, and during bull runs, investors can make more profit. However, when prices are low, mines may struggle as their income is directly proportional to their shares.
Invest In Gold Funds
Investing in gold funds offers some shield against the volatility of the stock and EFT markets. Investors can choose to delegate the trading to fund managers, who, then, invest in gold mines and other platforms. However, because the managers don't necessarily invest in gold, the price in your portfolio won't always replicate the actual price of gold. An investor will pay a certain percentage of their portfolio as management charges.
Gold isn’t subject to rigid regulations, illegalities, and other limitations that may harm its value. The process of acquiring one is simple and, therefore, easy for anyone to get a hold of. However, this does insulate you from fraudsters and low-quality gold, and that’s why you need to trade with reputable companies.
Gold is and has always been a good investment. Even with the emergence of other forms of financial instruments, such as cryptocurrencies, the stability that gold offers is more likely to stand out and work for any investor. It’s safe to say that investing in gold is an excellent financial decision.