Investing In Gold Pros And Cons

Gold is a precious metal mined by washing rock ore. Gold deposits are rare throughout the world. Most of them are already being developed, and the rest are located in hard-to-reach places. Gold mining is a very labor-intensive and slow process, which provides this metal with the status of a rare one. Gold also has unique physical and chemical properties: anti-corrosion, ductility, and the ability to withstand exposure to chemicals. In addition to durability, it is characterized by excellent electrical conductivity – gold is actively used in the space and aviation industries, creating computer components, etc.

Crises regularly shake world economies. In the late 1970s, world powers decided to abandon the gold standard and switch to the exchange rate, which was regulated only by supply and demand in the market. This made it possible to eliminate many problems of the post-war period but at the same time caused new problems to arise. The standard strategy for investing in gold is based on the assumption that the gold standard will return – in the same or changed form. In this case, gold as a currency standard will significantly strengthen its position in the market in the coming decades.

Experts call the main factors for the increase in the price of gold:

  • a possible reduction in Fed interest rates – up to 2-3 episodes for federal funds in 2020;
  • high risk of a global recession due to trade tensions between the US and China;
  • upcoming US presidential elections;
  • the protracted economic recovery in the US since the 2008 crisis.

In addition to all of the above, the global trend towards the de-dollarization of settlements and the propensity of the central banks of various powers to increase the share of gold metal in gold and foreign exchange reserves should be noted. An obstacle to the growth of the cost of gold may be an increase in interest rates by the Fed, the successful conclusion of an agreement on mutual trade between China and the United States, and stimulating the economies of developed countries with an effective fiscal policy. However, experts consider all these events unlikely.

Investing in a precious metal allows you to save savings and increase them in the long run. Some of the benefits of investing in gold include:

  • High liquidity. Regardless of the global economic or political turmoil, gold can be sold, albeit with minimal losses – unlike currencies and various securities. Gold can fall in value or rise but never depreciate.
  • Stability. The price of precious metals is rising slowly but steadily.
  • Recognition. In various countries, gold has served as a universal means of payment.

Among the disadvantages of this type of investment, experts note:

  • Duration. A noticeable effect from investing in gold is observed within 10-15 years.
  • Low profitability. Investing in precious metals is not one of the most profitable portfolio instruments.
  • Increased spread. With minimal investment, to generate income, you will have to wait for a serious increase in the cost of the metal.
  • A large interval of losses and profits – gold allows you to get a good income in a short period and also lose money in a similar distance. An investor cannot accurately predict price movements.

Also, unlike bank deposits, the client does not receive a percentage of the money invested – income is possible only when selling the metal.

Investing In Gold Pros And Cons
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