Investing in gold is an idea worth mulling over. There are many gold investment reasons to convince you. And no, they have nothing to do with the gold pyramiding scam that has given the industry a bad rap. Whether you’d like to invest in gold jewelry or bullions, the following points will shed some light on your brewing questions.

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Positive historical trend

Unlike coins, paper currency and other assets, gold has managed to increase in value over the years. Its price has consistently risen every year since 2001. While gold prices do not inch up every single day and can appear erratic, the general trend remains to be upward. Hence, the investment mindset should be long term.

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Geopolitical uncertainty

The increasing value of gold has been known to persist even in the face of geopolitical uncertainty. As a matter of fact, gold has been dubbed the “crisis commodity” as people tend to rely on it as a safe investment in times of world tensions. It outperforms other types of investments during rocky times. For instance, the gold prices gained major price movements in 2016 after crisis started brewing in the European Union. The price of gold see the most increase when confidence in governments is dipping.

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Weakness of the US currency

One of the most important reserve currencies in the world, the US dollar strongly influences the price of gold. When its value falls, just as it did from 1998 to 2008, people turn to gold for security. The increased demand then raises the prices of gold. The decreasing US dollar value was due to a number of reasons, including the country’s large trade and budget deficits, and the large money supply.

Between 1998 and 2008, the price of gold almost tripled, reaching the $1,000-an-ounce milestone by 2008. It also nearly doubled between 2008 and 2012, hovering around the $1,800 to $1,900 mark.

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Inflation

Gold has historically proven to be excellent at beating inflation. The price of gold tends to increase as the cost of living rises. In the past half-century, investors have seen gold prices soar even as the stock market plunged in the years of high inflation.

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Deflation

The prices of gold also survive deflation. Deflation is a period in which the economy is burdened by excessive debt, business activity slows, and prices decrease. This has not happened since the Great Depression that occurred in the 1930s. During this period, the value of gold soared while other prices decreased sharply.

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Increasing demand 

There has been a growing demand for gold. The increased wealth of emerging market economies in the past years boosted the demand for gold. Gold has become intertwined into the culture in many of these countries. One of the world’s largest gold-consuming countries, India has many uses for gold, jewelries included. The highest global demand for gold coincides with the Indian wedding season in October. Whereas in China, where the traditional form of saving has been through gold bars, the demand for gold has remained steadfast.

There has also been an increase in the demand for gold among investors. Many are starting to view commodities, especially gold, as a class of investment that is worth the allocation of funds. As a result, SPDR Gold Trust grew to become one of the largest exchange-traded funds in the US. They have also become one of the largest holders of gold bullion in the world in 2008. This is after only four years of its inception.

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Supply constraints

Much of the gold supply available in the market since the 1990s are from the sales of gold bullion from the global central banks’ vaults. Such selling by central banks slowed greatly in 2008. Additionally, the mines’ production of gold had been declining since 2000. Their annual output fell from 2,573 metric tons in 2000 to 2,444 metric tons in 2007. A new mine will not be in production until after five to 10 years. The resulting reduction in supply leads to an increase in the prices of gold.

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Portfolio diversification

One key rule of diversification is to find investments that do not have a close correlation with one another. History has proven gold to be negatively correlated with stocks and other investment instruments. The 1970s was a terrible time for stocks, but a great one for gold. Stocks boomed in the 1980s and 1990s, but gold faltered. In 2008, consumers migrated to gold while stocks dropped substantially in value. Proper diversification entails combining bonds and stocks with gold, producing a portfolio with reduced overall volatility and risk.

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Jewelry

Is it advisable to invest in jewelry? Its tangibility, portability and glitter have made jewelry an attractive choice for many people looking for investment vehicles. The surge in gold prices has made it all the more attractive in recent years. Despite the popularity of gold, financial advisors urge taking caution when choosing this investment option. Even jewelry specialists advise people not to buy jewelry for investment purposes, but because they like them to start with.

Experts assert that gold jewelry investment remains to be a safe store of value, but are quick to point out that it should be a long term investment as the prices of gold tend to be erratic in the short term. You simply cannot treat it as one of the investment vehicles with a quick turnaround, and should not expect to make a quick fortune from it.

One other thing you need to consider is that the value of gold jewelry is affected by numerous factors, such as workmanship, quality, market preferences, the price of commodities and gemstones, among others. Pieces of jewelry do not increase in value at the same rate. It is essential that you take a close look at the factors that will determine whether the piece will increase in value or would turn out to be just an expensive adornment. Knowing where to invest in jewelry is key. You must purchase only from a trustworthy and professional source. There are countless sellers of jewelry, but only a selection truly know what they are doing.

When shopping for jewelry, check for the authenticity of the gemstones that go with your gold piece. Request for a certificate awarded by internationally recognized gemological institutes. You should look at the quality and workmanship of the gemstones, as this has an effect on its potential value. The right jewelry piece can prove a worthy investment. It can go as far as becoming an important and highly valuable family heirloom. It can also provide a reliable fallback option in times of emergency, as you could easily pawn it. Here in the Philippines there are tons of places you can do it, like Palawan Pawnshop which offers pawning services to ordinary people and families in the Philippines.

To summarize, gold should be part of a diversified investment portfolio, as its price increases when the price of financial instruments like stocks and bonds fall. While its price can be volatile in the short term, it has proven to increase in value in the long run. Gold is definitely an investment option worth considering.

 

Resources: 

http://business.inquirer.net/31373/gold-an-investment-to-be-treasured
http://www.investopedia.com/articles/basics/08/reasons-to-own-gold.asp?lgl=rira-baseline-vertical
http://news.abs-cbn.com/business/11/04/13/looking-new-investment-try-jewelry
http://www.philstar.com/ystyle/2016/11/18/1644780/should-you-invest-jewelry
http://learnfinancialeducation.com/is-buying-gold-jewelry-a-good-investment/