Investors often ask me whether they should invest in physical gold.
I usually tell my clients to avoid investing in physical gold unless they have an emergency fund.
However, I recently came across four reasons why investors should consider owning physical gold.
#1. Investing in Physical Gold Can Be Profitable
In recent years, gold prices have been volatile. This volatility has made investing in physical gold difficult for most investors. However, if you invest in physical gold, you can benefit from its price fluctuations.
For example, let's say you bought $10,000 worth of physical gold back in 2011. If you sold your gold today, you would receive $20,000. That means you would have doubled your investment.
This is possible because gold prices fluctuate based on supply and demand. As the global economy improves, demand for physical gold rises. Conversely, as the global economy worsens, demand for physical gold declines.
As a result, gold prices rise when demand exceeds supply. And vice versa.
#2. Physical Gold Has Value Even During Financial Crises
Gold is considered one of the safest investments available. Because of this, it makes sense to hold physical gold during times of economic uncertainty.
During financial crises such as the 2008 recession, investors tend to panic and sell off stocks and bonds. But physical gold tends to remain steady during these turbulent periods.
When investors panic and sell off stocks, they typically sell off shares of companies that pay dividends. Dividends are paid out every quarter and represent the cash flow that shareholders receive each month.
Because dividend payments are tied to earnings, stock prices fall when earnings drop.
Dividend payments are also affected by corporate actions such as mergers and acquisitions. These events cause stock prices to fall.
On the other hand, dividend payments are unaffected by changes in interest rates. Interest rates affect bond prices but not dividend payments.
Therefore, investors who buy physical gold tend to see higher returns than those who invest in stocks and bonds.
#3. Physical Gold Provides Protection Against Currency Collapse
Many countries issue currencies backed by gold. For example, the U.S. dollar is backed by gold.
If the value of the currency falls due to inflation, investors can protect themselves by buying physical gold.
A currency collapse occurs when the value of a country's currency drops significantly.
Currency collapses happen when governments print too much money. This causes inflation, which leads to rising prices.
Prices rise because businesses and consumers spend more money to purchase goods and services.
To combat inflation, governments raise taxes. Higher tax rates lead to fewer jobs and slower growth.
These factors ultimately contribute to a weaker economy.
When the value of a nation's currency weakens, investors may choose to diversify their portfolios away from domestic assets.
They may also seek protection against future currency collapses by purchasing physical gold.
#4. Physical Gold Is Easy to Sell
Unlike stocks and bonds, physical gold does not trade on any exchange. Investors do not need brokers or exchanges to buy and sell physical gold.
Instead, they simply sell their holdings to dealers.
Dealers then resell the gold to buyers.
This means that physical gold is easier to sell than stocks and bonds.
Furthermore, unlike stocks and bonds, physical ownership of gold cannot be transferred. Therefore, selling physical gold is permanent.
Owning physical gold is similar to holding real estate. Real estate owners don't have to worry about transferring their property to heirs.
Similarly, physical gold owners don't have to transfer their holdings to heirs. They can pass down their gold to their children without worrying about what happens after death.
Conclusion
Investing in physical gold isn't right for everyone.
But if you're looking for ways to diversify your portfolio, physical gold could be a valuable addition.
It provides stability during turbulent times, protects your wealth from currency collapses, and is easy to sell.
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