Why do investors like to add gold to their portfolios?

Unlike fiat currencies today, which are held only for the most part, it is possible to own physical gold as an insurance policy.

But is reassurance the only reason why investors like to add the precious metal to their portfolios?

Physical gold – a hedge against inflation

Gold is often thought of as dependable and used as protection against purchasing power risk, as its value usually rises when the dollar’s buying power falls. However, mixed record shows that adding the precious metal to investor’s portfolios as a hedge might actually be taking a gamble.

The safe-haven asset is considered one of the most secure investments, especially in times of uncertainty. Investors favour the yellow metal as protection of their assets from slowing economic growth, growing uncertainty and volatility. As investments grow, so does demand.

Market Analysis

Gold has generally been steady through time as it cannot deteriorate and it does not lose its value due to age. Because of this, it has been seen as way to preserve investor wealth over time. Furthermore, unlike fiat currencies, Gold’s value cannot be controlled by a central bank, and it isn’t affected by printed money or fiat monetary supply.

Additionally, gold’s liquidity is also what makes it so attractive as it can be bought or sold easily, quickly and cheaply allowing for more flexibility and choice in how investors do their transactions.

Unlike real estate, for example, Gold does not require much maintenance other than a location for safe keeping, making it a timeless asset.

Investment and trading methods

There are different financial products you can use to invest in gold, depending on your trading strategy.

Investors who use active trading strategies such as scalping and day trading and want to bet on short-term price movements for all sorts of market conditions (long and short-trading), can use derivatives on Gold like CFD (Contracts For Difference), futures, ETF (Exchange-Traded Funds), and options.

Such investors need to be sure they know how to manage volatility and risk because they will mostly be using leverage and margin trading.

Investing in Gold indirectly is also an option through gold miner shares for instance.

For investors, its important to not have all their eggs in the same basket. Owning gold might be the asset to diversify the investment with several investment options, including physical or digital Gold, as well as financial products on Gold.

Disclaimer: The content of this article is sponsored by ActivTrades. Opinions are personal to the author and do not reflect the opinions of LeapRate.

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