Throughout history, gold has remained a longstanding investment instrument. The unique properties of the precious metal have chiefly contributed to its value as a safety net for investors seeking stability for their investment portfolios, and they are also why gold advocates like Harald Seiz are so fascinated by it.
Not only has gold served as an investment vehicle, but it has also been used to foster cultural identity. Additionally, gold is used for a wide range of industrial applications. This has positioned gold as the most sought-after product in the commodity market.
This piece explores the reasons why gold is often perceived as a safe investment against inflation.
Gold returns could outperform the inflation rate, according to Harald Seiz
The general lack of big volatility in the price of gold makes it an attractive investment to investors. When investors buy gold, they buy an asset that will hold its value and therefore provide a good hedge or, in other words, protection against inflation.
Consider an investment scenario where you invest in a stock that gives a 2 percent return, but the rate of inflation is 3 percent, invariably, you are losing that 1 percent.
Historically, when the prices of goods attained an all-time high, the stock market often plunged, while the price of gold soared. This is because people tend to buy gold at an increased rate when their local currencies are nose-diving. This is because paper currencies lose their purchasing power in the face of inflation, unlike gold.
The renowned gold expert and entrepreneur Harald Seiz always advises: “A well-diversified portfolio is one that has gold in the right proportion.” Harald Seiz further states in his experience, gold has proven to outperform normal inflation rates on average, as the price of gold increases by eight percent every year on average since 2001. Compared to the usual Euro or USD inflation rate of two percent, gold clearly wins against traditional currencies.
Gold is a good hedge against currency devaluation
The value of gold is inversely correlated with the value of the U.S dollar. What this implies is that if the U.S. dollar loses its value because of inflation, gold tends to become more expensive.
A gold investor will be hedged against a weak dollar. As inflation rises and eats up the value of the U.S. dollar, the price per ounce of gold moves upward. An investment in gold annuls the effect of a falling dollar.
What makes gold attractive to smart investors is that gold loves bad news! In contrast to other financial instruments, the value of gold tends to move in the opposite direction to market uncertainty.
Gold is recyclable, non-corrosive, and preserves its value
In contrast to common coins, fiat currencies, and other types of assets, gold is known for maintaining its value over centuries. The properties of gold account for its uniqueness and value.
It is highly recyclable and resistant to corrosion. This enables small fragments of gold to be melted into coins or other expensive jewelry.
Gold has a well-earned and deserved reputation for making a great hedge against inflation, which eats away at the value of paper assets again and again. Fortunately, no matter what happens to gold, it will most likely at least retain the value that it took to mine and produce, while paper assets can theoretically go all the way down to zero.
Gold has a fixed inflationary supply
Due to the constraints in the supply of gold, it is impossible for any government to print an excessive supply of gold like with fiat currencies. Gold mining activities have continued to slow down due to the fast depletion of gold reserves.
Currntly, the inflationary supply of gold is fixed at 2 percent annually, which makes it an extremely rare precious metal. This constraint in the supply of gold is advantageous to gold investors, seeing as when the supply of gold decreases, the price of gold increases.
Gold-based IRAs are on the rise
Gold-based Investment Retirement Accounts (IRAs) are becoming increasingly popular these days. Backing your Investment Retirement Account with gold offers brilliant insurance for your retirement funds. If the market changes due to inflation, your investment portfolio does not shrink.
The gold-based IRA is a type of retirement account that is approved by the government and backed by actual physical gold. For many investors, paper assets are too much of a risk. Not only does a gold-based IRA protect your hard-earned money from the forces of inflation, but it also guides against the unsound fiscal policy.
The bottom line
The demand for gold is gradually creeping to an all-time high. Investing in gold has always been recommended as a good cushion against the harsh realities of inflation, especially as the economy is beginning to feel the pangs of recession.
However, it is a good call to have sound knowledge of all investment instruments before venturing into them.