Why to Invest in Gold??

Gold one of the Ancestral Investment Technique which has always come to the Rescue at the Time of Crisis!! It continues to be a popular investment for ages, respected all over the world for its value and rich history. With various innovations, gold trading has evolved from physical gold to virtual trading. However, all forms of gold are equally attractive for investments.
Although there are many reasons for which investment is made in Gold, but the primary reasons can be bifurcated into 3 categories which are: Safety, Liquidity, and Returns. While gold meets the first two criteria swimmingly, it doesn’t do badly at the last one either.

1. Liquidity
At the time of need, investments in gold can be liquidated much faster than other physical assets like real estate. Unlike many other assets there is no lock-in period in gold investments except for sovereign gold bonds. The redemption amount in case of physical gold will, however, depend on the purity of the gold, denomination and other factors including the market price. In the case of the paper gold, the market price on the redemption date determines the redemption amount. When short of funds, one may also take loans against gold. 

2. Tangibility
The tangible nature creates a perception of safety among investors. While other assets are stored digitally due to which they are prone to hacking and other misuse. Purchasing gold is much easier as compared to purchasing other tangible assets such as real estate.

3. Geo- Political factors
In the case of financial crisis and geo-political turmoil, the gold comes to the rescue. These crises have a positive impact on gold prices since the demand for gold goes up as a safe haven for parking funds.

4. Maintenance of Value
Throughout the years, gold has held on to its value and people look at it as a way to pass on and preserve wealth from one generation to another.

5. Supply Constraint
Most of the gold supply since the 1990 has come from the sale of gold bullion from the central bank’s vaults. But there has been decline in the supply from the central bank and the gold mining output has been declining as well. It will take another 5-10 years to bring a new mine into production. Reduction in the supply of gold increases the prices of gold.

6. Increase in Demand
Increased wealth of the emerging economies boosted the demand for gold. In most countries, it is intertwined into its culture. Indians buy a lot of gold especially during the wedding season and China buys gold bars as they are a traditional form of saving. The gold demand has been growing among the investors as well.

7. Portfolio Diversification
Key to diversification is to invest in products that are not closely correlated to each other. Gold happens to have a negative correlation with stock and other financial instruments. Hence, it is a perfect choice to diversify your portfolio and to ensure that you are reducing the overall volatility and risk. The decline of paper investment leads to increase in the price of gold and hence gold is the perfect investment to make if you wish to diversify your portfolio. In the short term, the gold prices can be volatile, but it has maintained its value over the long term. If you are planning on investing in gold, make sure it is for a long term. It will serve as a hedge against inflation and the erosion of major currencies. Investing in gold is worth considering.

8. Hedge against Inflation
When inflation rises, the value of currency goes down. Over the long term, almost all major currencies have depreciated in value relative to gold. Therefore, people tend to hold money in the form of gold. In times when inflation remains high, especially when it is in high double digits, over a longer period in the economy, gold becomes a hedge against inflationary conditions. 

9. Deflation benefit
Prices decrease and business activity slows down at times of deflation and the economy gets burdened with excessive debt. The relative purchasing power of the gold soars while other prices drop. Therefore, the time period of deflation becomes the best time to purchase gold in comparatively lower prices.

All the above benefits can be compressively categorised between Safety, Liquidity and Returns.
One should do proper analysis of every pros and cons of the investment option and choose wisely of where to invest.