Gold is so far the most popular precious metal traded across the globe. There are various reasons that traders and investors consider gold as a major investing instrument to be included in their portfolio. Some of these major reasons are discussed here.
- Diversification of Portfolio: Traditionally gold shows a negative correlation to stock and other capital markets. And also gold is a highly popular and unique investment instrument. Thus it is a good addition for diversification of portfolio.
- Good hedging instrument against both inflation and deflation: During inflation returns from other instruments tend to reduce but gold prices usually increases. Similarly during deflation business activity and economic growth reduces. But the purchasing power of gold tends to rise while others fail.
- Hedge against US Dollar uncertainty: Gold and USD are showing negative correlations; especially when there is high uncertainty in market.
- Increasing demand and diminishing supply: Global demand for gold is increasing while supply of new gold from mines and by selling of gold bullion from central bank vaults is decreasing. This is causing the price to rise. Also the production, transporting and storing costs of gold are increasing.
- The golden price appreciation history: In long-term, gold has always showed an upward price trend. And in fact many cultures still use gold as the prime commodity to store wealth and to pass it on to next generation.