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Reasons [to & not to] Invest in Gold

5 Reasons to Invest in Gold 👆

  • Because it is a real asset with limited supply, gold is an effective inflation hedge.
  • Gold typically performs well during recessions, bear markets, and when stock market volatility is high.
  • Gold has a low correlation with most asset classes. This is a useful characteristic when building a diversified investment portfolio. Gold investment can be an effective way to hedge portfolio risk and volatility.
  • While interest rates are low, the opportunity cost of investing in gold is low. In other words, by owning gold you are not missing out on high interest or dividend payments.
  • Gold is a tangible asset and you know exactly what you own. On the other hand, the value of financial assets is based on expectations about the future which involves uncertainty.

5 Reasons Not to Invest in Gold 👇

  • Unlike cash, stocks, and bonds, gold does not pay any sort of yield. In fact, storing and insuring gold can result in a negative yield.
  • What is gold worth? Because there is no yield, it’s impossible to calculate the intrinsic value of gold. The gold price is driven entirely by supply and demand, which means its price has a speculative nature to it.
  • Liquidity can be a problem with a gold investment. If you own physical gold, you need to store and transport it. If you own gold indirectly, you may be exposed to the same liquidity problem as other financial assets in the case of a collapse of the financial system.
  • For physical gold, transaction costs are higher than they would typically be for assets that are electronically traded. This is especially true for gold coins.
  • Speculation and the use of leverage are creating increasing risks for anyone investing in gold. When you use leverage to buy an asset, you will probably not be able to ride out a meaningful decline. If there are too many speculative long positions, and those positions are leveraged, the price can fall substantially in a short period.

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