Investing in gold can bring stability and diversification to an investment portfolio, especially during turbulent economic times.
Gold is perceived as a “safe haven”, offering investors the possibility of preserving their wealth. It provided a good hedge against inflation headwinds.
Indeed, in theory, increased demand during periods of inflation – such as we are experiencing now, with prices in Australia rising by around 7% – can drive the price of gold higher.
Along with cash, stocks, bonds, and real estate, gold is an asset that can provide investors with the essential element of diversification. Diversification is useful because it provides a form of financial protection when an asset class, such as stocks, underperforms.
It is often said to have an inverse correlation with other asset classes. In other words, if stock markets fall due to economic uncertainty and rising inflation, gold may perform better.
You can buy gold directly, in the form of bars, coins or jewelry. Alternatively, it is possible to gain exposure via an ETF fund or a CFD investing in the futures market.
A third option is to invest indirectly by buying shares in companies that mine, refine and trade gold. Note that while mining company stock prices tend to be correlated to the price of gold, individual stock prices are also affected by fundamentals such as profitability, environmental issues, and geopolitical and regulatory risks.
Exposure to gold is not without risk. As with any asset class, the price of gold fluctuates and is subject to the usual laws of supply and demand, so you could lose your initial investment.