You buy and sell it, but it doesn't generate compound interest like a. Historically, gold has been an excellent hedge against inflation, because its price tends to rise when the cost of living increases. For the past 50 years, investors have seen gold prices soar and the stock market crash during years of high inflation. This is because when fiat currency loses its purchasing power due to inflation, gold tends to be quoted in those monetary units and, therefore, tends to emerge along with everything else.
. Some people argue that gold has no intrinsic value, that it is a barbaric relic that no longer possesses the monetary qualities of the past. They argue that in a modern economic environment, paper money is the preferred currency; that gold is only good as a material for making jewelry. Despite what you may have read, gold is actually not a good hedge against inflation.
People who love gold say that when inflation rises, so does the price of gold. I have a mini-market and a shotgun to defend my actions from looters. If we're in some kind of post-crisis world where dinosaurs roam the Earth, I doubt I want your gold. It will be as useless (or as valuable) as paper money.
Why? Because, in reality, gold is also fundamentally a fiat currency. That is, people have assigned it an arbitrary value. That value fades in a crisis, as does the value of paper money. Gold interest rates tend to remain unchanged by inflation because they retain their value longer than other investments backed by dollars.
You can also invest in gold by purchasing gold mining stocks, gold futures contracts and gold exchange-traded funds (ETFs). Silver and gold are beautiful metals that are easy to turn into jewelry, and both precious metals have their own devotees in fine jewelry circles. Gold should be an important part of a diversified investment portfolio because its price increases in response to events that cause the value of paper investments, such as stocks and bonds, to fall. For example, on a whim, I decided to check the effect of the last presidential administrations on the price of gold.
At the other end of the spectrum are those who claim that gold is an asset with several intrinsic qualities that make it unique and necessary for investors to keep it in their portfolios. Although the price of gold may be volatile in the short term, it has always maintained its value over the long term. There is some element of supply and demand in the price of gold, but it is nowhere near what you see with other commodities. In theory, if the collapse of the world reserve currency has not brought the entire world economy to paralysis, you may be able to exchange your gold for euros or Swiss francs or anything else with which markets begin to denominate prices and start a small and pleasant import business.
From an elementary perspective, gold is the most logical option as a medium of exchange for goods and services. This is because people chose to accumulate cash, and the safest place to store it was in gold and gold coins at the time. Gold doesn't corrode, providing a sustainable store of value, and humans are physically and emotionally attracted to it. The key to diversification is to find investments that are not closely correlated with one another; historically, gold has been negatively correlated with stocks and other financial instruments.
For example, gold prices experienced some significant price movements this year in response to the current crisis in the European Union. .