Is gold a sound investment? This is one of the most popular questions posed by retail traders in the financial markets today. With rampant inflation sparking a global cost-of-living crisis, attentions are diverting from the stock markets as retail traders seek alternative investment opportunities during this period of economic instability.
In the past, retail traders had no route into buying and selling futures contracts on commodities like gold and silver. This used to be reserved solely for institutional traders, but contracts for difference (CFDs) have given retail traders direct access to the ตลาด ฟิ ว เจอร์, complete with low margin requirements and greater leverage than conventional exchanges. Although this increased leverage can also bring heightened risk.
What are the most common entry points for those looking to buy gold? When would a first-time gold investor look to enter the market?
Hedging against inflation
One of the main reasons retail traders look to buy gold is to hedge against inflation. The yellow metal’s value typically falls when inflation surges. In the long term, most key fiat currencies have depreciated against gold. Whenever the purchasing power of the US dollar falls, gold also thrives. At present, USD is one of those ‘safe haven’ currencies that people invest in during periods of global economic uncertainty.
Gold cannot experience bankruptcy
Unlike those who invest in equities, gold investors know that this precious commodity cannot go bankrupt in the same way as a listed company. There is no third-party or middleman involved in transactions for gold. This means that precious metals like gold will always fare best when economic crises rear their ugly heads. Some will look to buy gold when previously rock-solid equities are starting to look less watertight within their portfolios.
Gold is a liquid commodity
One of the main benefits of gold – and other precious metals – is that they offer impressive market liquidity. Gold can be quickly bought and sold, both on and offline. Gold dealers are plentiful in most established towns and cities, while the price of gold and gold futures can also be traded at the touch of a button online. Liquidating positions on gold is typically faster than with equities. Unlike collectables such as rare artwork, where target markets are much smaller, gold can be exchanged for most other assets anywhere in the world.
Gold is not affected by central bank decisions
Although gold can be influenced by periods of high inflation, it is not directly affected when central banks choose to raise interest rates. This is another reason why gold is deemed the number-one ‘safe haven’ asset in times of economic volatility. Unlike fiat currencies, more gold cannot be printed in a form of quantitative easing to drive economies. It, therefore, has a scarcity which helps it maintain a steady value over the long term.
It’s for these reasons that gold is a sensible addition to any diversified portfolio of investments, ensuring a healthy balance of risk and safe holdings that mitigate volatility for retail investors. Gold is one of the longest-standing currencies on planet Earth and is still firmly intertwined within the workings of the financial world.
