Gold has been regarded as a safe haven to protect one’s wealth for centuries. It has protected investors against economic downturns and inflation over the years. Given the complexity of the nation’s financial situation, investors are concerned.
As such, it’s only right to ask if this precious metal can still play the role of a financial hedge, as it has done in years past. Therefore, in this article, we’ll explore the use of gold as a safe haven against downturns and inflation, especially during a recession, and determine if it is still a trusted commodity. You can read this article to learn the difference between a downturn and inflation. Let’s get right into it.
Factors that Influence the Price of Gold
The price of this precious metal is heavily influenced by interest and inflation. These two factors are intrinsically linked, which means they work hand-in-hand. The reason this precious metal can serve as a hedge against inflation is because of its limited supply. Nevertheless, this commodity is not without risk, even though it can help protect your wealth.
How Uncertain Financial Times Affect Gold
When a country or an economy is plagued by uncertain financial times, such as a recession, it affects the price of many commodities, including this precious metal. Although aurum’s price is inversely affected by the increase in inflation rates, this doesn’t take away the inherent value of this precious metal. This is because aurum is a tradable commodity across the globe, and the effect of inflation on it in one part of the world doesn’t reduce its global value.
What if the recession is global? Won’t its value be affected? In such a case, gold will still retain its value. This is thanks to its liquidity, as most investors believe they can easily trade the commodity for cash during critical economic periods.
Therefore, this precious metal remains a safe-have commodity in uncertain financial times because of its high performance level in such periods. A typical example is the stock market collapse of 2007, which led to an increase in demand for the yellow metal. This demand continued to increase to the point that the value of this asset doubled between 2007 and 2011.
The COVID-19 pandemic provides another good example. During this uncertain period, Aurum’s price was at its highest. Furthermore, this increase was also seen in gold-backed ETFs.
Is Investing in Gold a Wise Move in Uncertain Times?
Now that we know that uncertain financial times don’t affect the intrinsic value of the yellow metal, the next thing is to determine if it is wise to invest in this asset during such periods. Investing in this asset doesn’t mean purchasing and holding it. Such trade activities will not yield any return until you sell the asset.
Aurum is a great safe-haven commodity when it is held in an environment with a lower interest rate. Therefore, it cannot work well if you’re holding it against the U.S. dollar. This is because the U.S. currency produces a yield.
Instead, you can invest in gold mutual funds, stocks, ETFs, IRAs, etc. This kind of investment protects your wealth and yields returns over time. If you’re wondering what these investments are, we’ve got your back.
Different Ways You Can Invest in Gold in Uncertain Times
In this section, we’ll discuss the different ways you can invest in this precious metal. We’ll reveal both the benefits and risks of each of these options. This will help you determine which option is best for you.
Mining Stocks
This involves owning the stocks of a mining company that produces the yellow metal. But how does this translate to investing in Aurum, you might ask? When you choose this investment option, you get a profit when the gold price rises. You could even end up having double the profit when the miner chooses to increase production.
The risk involved lies in the presence of shady miners in the industry. Therefore, ensure that you only buy stocks from reputable mines in the mining industry. Another risk is that the investment is just like any other kind of stock. Therefore, the risk of volatility is a very important factor.
Gold ETFs
These ETFs allow you to enjoy the long-term stability of the commodity while enjoying more liquidity than holding the physical item. Furthermore, it gives you the chance to select several diversification options compared to mining stocks.
Therefore, you can sell off your asset at the market price once the market is open. This can be done even from your home, all without the massive transaction costs that come with selling off the physical item.
Just like stocks, ETFs are volatile at times. But since you’re not holding the physical asset, this protects you from the greatest risk. Moreover, you’ll still get the full asset value when you choose to trade.
Gold IRAs
If you’re looking for a retirement plan that allows you to invest in gold, then a gold IRA is what you need. Just like the other options we’ve talked about, you won’t keep the physical commodity with you. Instead, it will be stored in a depository until it’s time for you to cash in on it.
This investment requires the services of a precious metal IRA company. Examples of such companies include American Hartford Gold, Birch Gold Group, Orion Metal Exchange, Goldco, etc. You can check out this review of Goldco to get an idea of what these companies do. These companies are regulated by the IRS and must follow a strict set of guidelines for their operations.
The main disadvantage of this option is that you can only withdraw and trade your commodity at a particular time. Therefore, you don’t enjoy liquidity compared to other options. If you choose to withdraw your asset early, you’ll have to pay a penalty fee.
Conclusion
Gold has served as a hedge and a means of protecting wealth throughout history. Yet, now and then, during uncertain financial periods, investors wonder if this precious commodity will still serve this purpose. Therefore, in the article above, we extensively provided an answer to the question, “Is gold still a safe haven for the U.S. dollar in uncertain times?” We are certain the information we’ve shared has cleared any doubt you might have in your mind about investing in this commodity.
