Investment in Gold as A Contributor to Economic Growth
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Over the centuries, gold has been crucial in the investment infrastructure of economies around the world.
Long gone are the days when gold was a unit of exchange in the barter system. It was due to its economic value that gold was used 1500 years ago in the Byzantine Empire. But even today, the metal hasn’t lost its importance and relevance in the economic arena.
It’s considered a solid, long-term investment and for good reason. It’s no surprise that a precious metal such as gold was used as the world reserve currency. It was only in 1944 that the dollar substituted gold as the world reserve currency after the passing of the Bretton Woods Agreement. However, even after the signing of this agreement, this metal was used to back up many domestic currencies. If it wasn’t for Richard Nixon in 1971, there still might have been a gold standard in the U.S.
People, who are keen on saving their assets in the form of investments, know that gold is an invaluable addition to your investment portfolio. This is particularly relevant in a market following bearish trends and this piece is going to discuss how gold is a contributor to economic growth.
Advantages of Gold As an Investment
Since cash is the most liquid form of currency and gold can instantly be sold for cash, it’s also considered a liquid asset. This alone gives gold an unparalleled universality. However, apart from being valuable in global economies, gold also helps sustain in times of an economic downturn.
In the event of an economic downturn, companies may have to liquidate their fixed assets. This could mean selling off property or capital to pay off debts and sustain daily operations. Even though this can ward off a cash crisis in the here and now, it can stall economic operations in the long-run because there are no means of production.
Unlike cash which is quick to depreciate in an economic crisis, gold retains its value. Because it’s a commodity—and a scarce one—the value of gold is not reflective in its price.
This is why economists argue that in times of inflation, the prices don’t determine the value of the metal itself. Unlike gold which has a high intrinsic value, the U.S. dollar is a flat currency which has no value of its own.
Hedge Against Inflation
Investors are often faced with the trade-off between investing in liquid assets such as cash or remain illiquid. A good argument in favor of gold is that it holds its value even in the face of inflation. As mentioned above, gold is a hedge against inflation. Since it’s valued in monetary terms, the price of gold in dollars goes up in case of inflation.
So while the dollar may be depreciating, gold will be appreciating. It only makes sense to invest in gold rather than keeping cash because those savings can lose value during economic rest. This offers much greater security when you compare cash and gold as investment options. Since this creates a major economic need for gold mining, it enables the economy to move toward betterment. There’s an array of new employment options and business opportunities.
A shrewd investor always likes to keep their investment portfolio diversified so the risks are divided across a range of options. This is more relatable in this case because gold tends to move inversely to currency values and the stock market. This way, it offers an effective way of diversifying the investment portfolio such that if the stocks and bonds devalue, the value of gold will still be soaring high.
And with a chunk of investments secured in gold, investors have a free hand to look at other income-producing investment options that also boost the economy. The risk of collapsing completely in times of an economic depression is much lower and investors are more confident about expanding their horizons.
How Gold Affects the Economy
The impact of gold investments on the economy waxes and wanes and largely correlates with other forms of investments as well. Economists often argue that the price of gold is a reliable indicator of how well the economy is doing in real terms.
The higher the price of gold in the market, the higher the risk that the economy isn’t faring well. This is why the price of gold reflects the investment behavior of savvy investors. Even though gold investments are a good hedge against inflationary pressures, critics have suggested investing during the period before inflation is expected to hit.
How To Invest in Gold
There are many ways of investing in gold. A few of them are namely buying stocks in gold mining companies or purchasing gold bullion. Even though investing in stocks may offer more leverage, it’s not advised if you’re looking for a safe investment. This is because stocks are over wrought with political risk—as they operate in developing nations, and the production levels of gold are unstable.
Buying gold coins or bullions is an easy way to know your money is safe. However, you need to be careful when choosing a precious metals investment company. Not all companies in the industry are worthy of your trust and hard-earned investments. Look for one which makes client’s investment security their top priority because this is the only way to know you’re not being conned.
Since every investor invests because of different reasons, their expectations from the investment company they pick are also different. You might be in need of securing your post-retirement financials or earn some profit in the future.
Whatever your reasons, you’d want to be clear on the company’s liquidation policies. This is why you need to be sure that the company you pick will be ready to facilitate all your transactions in an orderly and authorized manner.
This is why Orion Metal Exchange—a PCGS-certified gold investment company based in Los Angeles—is the right place for you. With over 50 years of experience in the industry, our name is one of the most trusted names among many others.
We value our clients and they’re more precious to us than our precious metals. If you’re ready to invest your trust and savings with us, we’re ready to assist you!
Call us at +1 800 559 0088 to get started.