6 simple reasons to own GOLD...

Gold is respected throughout the world for its value and rich history, which has been interwoven into cultures for thousands of years. Coins containing gold appeared around 800 B.C., and the first pure gold coins were struck during the rein of King Croesus of Lydia about 300 years later.

Unlike paper currency, coins or other assets, gold has maintained its value throughout the ages. People see gold as a way to pass on and preserve their wealth from one generation to the next. Since ancient times, people have valued the unique properties of the precious metal. Gold doesn't corrode and can be melted over a common flame, making it easy to work with and stamp as a coin.

Throughout the centuries, people have continued to hold gold for various reasons. Societies, and now economies, have placed value on gold, thus perpetuating its worth. It is the metal we fall back on when other forms of currency don't work, which means it always has some value as insurance against tough times.

Below are six practical reasons to think about owning some gold today:

Increasing Demand

In previous years, increased wealth of emerging market economies boosted demand for gold. In many of these countries, gold is intertwined into the culture. India, for example, is one of the largest gold-consuming nations in the world, with the bulk of its demand coming from the jewellery sector. As such, the Indian wedding season in October is traditionally the time of the year that sees the highest global demand for gold. In China, where gold bars are a traditional form of saving, the demand for gold has been steadfast.

Demand for gold has also grown among investors. Many are beginning to see commodities, particularly gold, as an investment class into which funds should be allocated.

Geopolitical Uncertainty

Gold retains its value not only in times of financial uncertainty, but in times of geopolitical uncertainty. It is often called the "crisis commodity," because people flee to its relative safety when world tensions rise. During such times, it often outperforms other investments. For example, gold prices experienced some major price movements this year in response to the crisis occurring in the European Union. Its price often rises the most when confidence in governments is low.

An Inflationary Hedge

Gold has historically been an excellent hedge against inflation, because its price tends to rise when the cost of living increases. Over the past 50 years investors have seen gold prices soar and the stock market plunge during high-inflation years. This is because when fiat currency loses its purchasing power to inflation, gold tends to be priced in those currency units and thus tends to arise along with everything else. Moreover, gold is seen as a good store of value so people may be encouraged to buy gold when they believe that their local currency is losing value.

The weakness of the U.S. Dollar

Although the U.S. dollar is one of the world's most important reserve currencies, when the value of the dollar falls against other currencies, as it did between the first few month of this year, this often prompts people to flock to the security of gold, which in turn raises gold prices.... The decline in the U.S. dollar occurred for a number of reasons, including the country's large budget and trade deficits and a large increase in the money supply.

It offers Deflationary Protection

Deflation is defined as:

"A period in which prices decrease, when business activity slows and the economy is burdened by excessive debt".

We technically have not seen this globally since the Great Depression of the 1930s, although a small degree of deflation occurred following the 2008 financial crisis in some parts of the world. During the Great Depression, the relative purchasing power of gold soared while other prices dropped sharply. This is because people chose to hoard cash, and the safest place to hold cash was in gold and gold coin at the time.

Supply Constraints

Much of the supply of gold in the market since the 2000s has come from sales of gold bullion from the vaults of global central banks. This selling by global central banks has slowed greatly post 2008, yet at the same time, production of new gold from mines has also been steadily declining since 2000. It can take (on average) from five to 10 years to bring a new mine into production. As a general rule, reduction in the supply of gold increases gold prices. When demand outstrips supply prices will always increase!

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 decline. Although the price of gold can be volatile in the short term, it has always maintained its value over the long term. Through the years, it has served as a hedge against inflation and the erosion of major currencies, and thus is an investment well worth considering.

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Posted Using LeoFinance