When you hear the word “gold”, the majority of you will link it with luxury, wealth, class, coins, or jewelry, right? We even use it to express someone’s importance as a person, with the well-known phrase “They have a heart of gold”. But what’s so special about this metal? Why investing in gold? Is it a good investment?
Well, for literally centuries, gold has been a well-established in all corners of the world. Due to its high rate and rich history, it became a special and respected commodity over time.
Here’s why traders invest in gold.
- Historic Value
To begin with, we need to understand what exactly makes this metal special.
Well, it’s been around since 2000BC (that’s a long time!) when Egyptians started making jewelry. It wasn’t until 560BC that it was used as a form of currency.
At the time, people were looking for an easily transferable form of money that would make trading more convenient and simple.
That’s when the creation of coins came into the picture since jewelry was already widely accepted and recognized all over the world.
Gold symbolized wealth throughout Europe, Asia, Africa, and the Americas.
Ever heard a family member say “It has been in our family for years” while showing you an old, fancy object made of gold? This is because it has a historic value!
The special metal managed to keep its rate throughout the years, passing on from one generation to the next. As the years went by, people started seeing it as a way to pass on and protect their wealth.
Since forever, people have valued its uniqueness, and, let’s face it, it has a beautiful shiny color too!
Historic value of gold is one of the many reasons investors love trading it!
- Gold VS U.S. Dollar
The US dollar is the world’s reserve currency. However, if the dollar’s price falls against other currencies, it sometimes prompts to invest in gold for security.
Gold is usually seen as a “safe haven” asset during uncertain, challenging times, because it is usually less volatile than other investments, like stocks.
A good example of this is the case of 1998-2008, when the price of gold almost tripled, hitting the $1,000-an-ounce milestone. Then in 2012, its price hit around an $1800-$1900 mark.
So, when the fancy metal moves inversely to the U.S. dollar; meaning that the dollar moves lower, gold usually moves higher.
- Protected Deflation
Deflation is when prices decrease, businesses slow down, and the economy is buried under a lot of debt.
An example of this was witnessed in the 1930s, when the Great Depression occurred, as well as in 2008 when the financial crisis hit different parts of the world.
During the Great Depression, there was a huge purchasing power over gold, while prices dropped sharply. This is because people chose to collect cash, and the safest place to hold the cash was in gold (or gold bars even).
In simple words, traders are investing in it both for hedging inflation, and being protected by deflation.
- Creating a Diverse Portfolio
When people have investments that are not related to each other, they create a portfolio that reduces the overall volatility and risk.
Many turn to gold and then combine it with stocks and bonds. If some is doing terribly at some point, chances are, the other one is doing better.
In the 1970s, gold was thriving but stocks were plummeting, and in the 1980s-1990s, the opposite happened. Stocks were doing awesomely well, but the pretty metal was suffering. Traders try to “play it safe” by creating a diverse portfolio, for such challenging times.
- Traders Love It!
Let’s be honest. If not all of us, most of us have a little leprechaun living inside our soul. You know, that little Irish man in a green suit that loves his pot of gold?
In reality, as well, there has been a huge demand for gold, especially in countries like India.
India, is one of the largest gold-consuming nations in the world, especially when it comes to jewelry. Every year in October, India sees its highest global demand, as they enter the Indian wedding season.
In China, for instance, gold bars are a traditional form of saving, and the demand has been steadfast.
SPDR Gold Trust became one of the largest ETFs in the U.S., as well as single of the world’s largest holders of gold bullion in 2008, only four years after its inception.
The “Golden” Conclusion
Through trading, yes, you can make money. You can, however, also lose money.
So, it all comes down to dedication, knowledge, strategy, and of course, a trustworthy broker.
Each trader shall be responsible for their own choices, having always in mind the risk of loss.
If you decide to trade gold though, or you’re thinking about it, feel free to check out our website for more information on how to trade it!
At EverFX, our team is available to assist you in the best way possible.
EverFX, for every trade!