4 Reasons To Trade Gold Read
Gold represents a viable way to hedge against weakness in the largest global economy – the United States. US economic weakness is likely to spill over into other economies, and central banks typically react by lowering interest rates and increasing the money supply. When these remedies fail to spur demand, they can lead to significant inflation and loss of purchasing power. Unlike fiat currencies, gold maintains its purchasing power in periods of inflation. How Does Gold Perform Amid Global Instability? Gold generally performs well during global crises. Wars, terrorist attacks and pandemics, for example, often produce a flight to safety. Gold generally benefits at the expense of other assets during turbulent times. Speculate on Rising Gold Prices Investors optimistic about the economic prospects of developing nations such as China and India may see gold investing as a way to profit from this view.
Gold has played an important role historically in these countries, and more wealth will likely translate into more demand for gold. Diversify Your Investment Portfolio Many traders view gold as a way to balance their investments. Historically, gold has a lower correlation to many asset classes, which makes it an attractive instrument to diversify. How Do Gold Investments Work? Think of investing in gold as a four-tiered pyramid, with the safest tier as your foundation (at the bottom) and then the risk (and reward potential) rises as you climb upward on the pyramid. Insurance – gold bullion in your possession. Investment / Saving – gold bullion on deposit, gold certificates, allocated gold accounts. Investment – producing gold mining company shares, gold ETFs. Speculation – gold CFDs, gold explorer shares, gold futures, gold options.
Investors purchase gold for a variety of reasons, but the following are the most common ones: Hedge against inflation Hedge against global instability Speculate on demand growth Portfolio diversification How Does Gold Act as an Inflation Hedge?