Buyers probably feel that the market is as unstable as ever, with headlines dominated by constant talk of inflation, the economic effects of international tensions, and the fear of a potential recession. However, they have an option that could continue to provide value, even amidst market fluctuations: purchasing physical gold.
Buying gold to diversify your portfolio in times of economic and geopolitical uncertainty
Gold has been considered a valuable asset for thousands of years thanks to a few inherent characteristics. For one, it is durable and corrosion- and tarnish-resistant, allowing it to retain its value for long periods of time. Gold also has a distinct appearance that makes it appealing for purposes like fashion and decoration. And of course, gold is scarce (relatively speaking). Things that are bountiful typically don’t become valuable; people want to own things that are exclusive and difficult to obtain.
Recent years have shown us that even fiat currency is not a “stable” asset class because of how these assets can be devalued by the actions of governments. “When a government prints more paper money, it devalues the currency and kicks off a period of inflation,” explains the Merchant Gold Group team. “But with precious metals, there is a finite supply; companies that mine gold can’t simply make more. As a result, gold and other precious metals are often seen as an effective hedge against inflation.”
Historically, gold and other precious metals tend to perform well during times of crisis, such as economic downturns and wars. Those who lack confidence in the performance of traditional purchases like stocks and bonds often flock to precious metals and other physical assets, seeing them as a “safe haven” and a store of value that can rally even as other markets suffer a decline.
Why institutional purchases in physical gold are good for the average buyer
Right now, we are seeing a trend of increased demand from central banks to buy gold and other precious metals. Average buyers might wonder what this means for them. Well, it’s a basic concept of economics — when demand rises against a limited supply, prices increase. And when a notable entity, such as a central bank, is the source of the demand, that increase is significant. Thus, when central banks are purchasing gold at the rates they currently are, this increase in gold prices is good for buyers of all sizes.
One reason gold has retained its reputation as a “safe haven” asset is that it serves as a hedge against uncertainty. Since the value of precious metals is not tied to the economy of any particular country, gold can be a reliable asset across global markets, regardless of geopolitical tensions.
“We have seen how wars and economic collapses can drastically affect the value of a country’s currency,” says the Merchant Gold Group team. “If you were to take a collapsing country’s currency to another country, it might be virtually worthless; the price of gold, on the other hand, would keep its value.”
A key advantage of physical assets like precious metals is that they enable the owner to retain full ownership and control over their assets. Other ways to purchase, such as stocks, bonds, and even fiat currencies, rely on the banks that maintain them.
While there are opportunities to purchase things like gold-backed exchange-traded funds (ETFs), the average consumer can also buy gold by purchasing gold coins, gold bars, or gold bullion. And unlike other physical assets, such as real estate, owning physical gold is much more attainable for the everyday person because you can buy or sell gold purchases in smaller quantities.
Because of these characteristics, precious metals like gold have a high level of liquidity, which offers unique advantages to buyers. There is essentially always a market for selling pure gold, silver, platinum, and other precious metals. And because buyers hold these bars and coins or other commodities in their hands, it means that they don’t have to wait for banks to approve transactions or even be open — they can sell whenever they want.
Given these characteristics, exposure to gold has become a favorable position in the eyes of institutional and other skilled buyers for portfolio diversification. “Of course, buyers must carefully consider whether an asset like gold aligns with their purchasing strategy and goals,” the Merchant Gold Group team adds. “For example, buyers looking for quick, short-term gains might find that precious metals are not the right asset class for them. However, for those seeking stability and long-term value, it could be an advantageous asset.”
Buy gold products as a commodity for your diversified portfolio
Indeed, while the current market conditions are incredibly volatile, physical assets like gold and other precious metals stand out as safe-haven assets for buyers looking to diversify their portfolios. “If you are looking for a way to hedge your portfolio against inflation, geopolitical strife, and other socioeconomic factors, now may be the time to buy physical gold,” concludes the Merchant Gold Group team.
