If you are looking to secure your future, or that of the next generation, then you may be looking for a safe investment – something that can hedge inflation and provide you with some certainty during times of economic instability. Precious metals have often been touted as a solid speculation choice but is buying gold a good investment?
Gold is generally considered a good investment choice for diversification – a strategy in which you create a mix of various types of investment within a portfolio to minimise risk. The idea behind a diversification risk management strategy is that the different types of assets will yield good returns in the long run and reduce the risk associated with only holding one type of asset.
Obviously, each asset will come with its own risk, but by diversifying you are spreading this risk out and ensuring that what might negatively impact one type of asset, may positively impact another. Other asset classes that may be combined with gold in a diversified portfolio include stocks, bonds, real estate and ETFs (exchange-traded funds).
Buying gold bullion is often a good choice if you are looking to hedge against inflation. This means that gold can generally maintain or even increase its value at a time when prices are rising. However, once high inflation has been reached, it is too late to hedge against it and thus the ‘good investment’ window may have passed. The optimal moment to put your money into virtually any asset is during a period of adverse sentiment when the asset is undervalued, thus offering significant growth potential when it regains popularity, however, knowing when this is can often be the difficult part. If you would like to know more about the current gold prices and how to protect your wealth please sign up for our newsletter.
Long term gains
Precious metals such as gold tend to hold their value in the long term, which can make them a good investment choice. If you have money to invest, the most sensible strategy is to grow it over the long term, thus negating the impact of any short term fluctuations caused by market volatility, economic uncertainty and inflation.
Investment risks associated with buying gold bullion
Of course, with any investment strategy, there are risks. You may be asking yourself ‘is buying gold a good investment?’ but what you should also be considering is the potential risks of investing in gold, which may include:
- Price fluctuations: Gold’s value often experiences wild swings in the short term, making its future worth hard to gauge.
- Uncertain protection against inflation: While some investors use gold as an inflation hedge, it’s not always a guaranteed bet that gold prices will rise with inflation rates.
- Influence of global politics: Political happenings, like wars, elections, or policy shifts, can sway gold prices.
- Cost of storage: buying gold bars also means you’ll need secure storage and insurance to guard against loss or damage which can add extra expenses to your investment.
Once you are aware of the potential risks as well as the long term rewards of investing in gold you’ll be better placed to decide on what makes the right investment choice for you. It is also worth noting that if you are looking to make and protect wealth so it can be handed down, buying gold bars, coins or items of jewellery can enable you to pass it on as an inheritance.
When considering whether buying gold is a good investment for you right now, the important thing is to be aware of the wider global picture. With a lot of political and economic uncertainty, global financial markets remain increasingly volatile which means it is difficult to predict gold prices from day to day, let alone in the long term. The best thing you can do is to stay abreast of the latest market trends and news and refer to this before making any important investment decisions.
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