In any economic downturn, investors buy gold. When the stock market starts to fall, or a currency undergoes devaluation, investments in gold almost always start to climb. Why is this, and why do investors pick gold during tough economic times? While each investor has their reason for investing in gold during an economic downturn, the three most popular ones are:
- As a hedge for other investment,
- As a safe-haven investment,
- As a time-tested investment.
Each of the reasons above confers certain advantages over traditional investments like stocks, oil, and index funds. In this article, we briefly explore each reason, helping you understand why you should buy gold in preparation for an economic downturn.
Hedging Your Other Investments
Investment hedging seeks to offset a falling value of one asset against a rising value in another. In an economic downturn, asset classes like stocks, indices, and oil typically fall. To offset this fall, investors invest in asset classes that have an inverse relationship to these assets. Gold is one such asset. In most economic downturns, the price of gold rises as those of other investment classes dip. Because of this, gold is considered a good hedging asset against other investment asset classes. It’s important to note that gold does not always enjoy an inverse relationship to other assets. However, gold prices tend to be resilient to economic downturns.
Buy Gold! It’s A Safe-Haven Investment
A safe-haven investment is an asset class historically proven to weather economic downturns. Gold demonstrates this resilience through its historical pricing. Investors consider gold a safe-haven investment due to its ability to ride out economic downturns with little loss in value. The main reason behind this price resilience is the perceived value of gold. While other investments have what is called fair value (a sale price agreed upon by a willing buyer and seller,) gold is considered to have actual value. That is, a physical piece of gold is regarded as having a constant value that does not rely on external factors. As such, investing in gold in anticipation of an economic downturn offers a safe place to preserve your funds.
Before money was invented, gold served as the ultimate de facto currency. Even when money was invented, its value came from what is known as the gold standard. Today, gold continues to enjoy this privilege as a time-tested store of value. Factors that have helped prop up the cost of gold include a controlled and finite supply, various industrial and social uses, and a long-standing history of value. Investing in gold in preparation for an economic downturn offers a well-established investment class that is well-respected across the world.
Should you buy gold?
Although historically gold was considered an investment for the rich, today, gold investments are accessible to anyone. If you are worried about the potential devaluation of your current investments (including cash), gold may be a good option for you. Take some time to consider whether you want to hedge your other investments, preserve your capital, or add gold as an additional investment to balance your portfolio. Whatever choice you pick, CanAm Exchange can help you invest in gold at your investment level. Get in touch today and find out how you can purchase gold in anticipation of an economic downturn.