Gold is like the ultimate precious metal. It’s been highly sought after for millennia and almost always retains its value. It’s also one major commodity due to scarcity and supply. Mining gold is costly and difficult, contributing to that scarcity. But more importantly, gold tends to retain its value when times get tough, effectively holding its own during market volatility and guarding against inflation. It’s like having amazing homeowners insurance or a backup plan for the future. If you’ve been considering an investment in gold or just want to expand your portfolio, here are five reasons why physical gold bars can be a wise investment for you.
There are two established types of investments that offer some protection against inflation: real estate and gold. Gold is well-known and often touted for its ability to act as an inflation hedge. But what does that even mean, exactly? When inflation strikes, it decreases the purchasing power of money. To hedge against inflation means to protect yourself from this decrease in purchasing power through your investments. Here’s why gold is the ideal inflation hedge: as markets change, become volatile, or experience changes, the price of gold doesn’t change much. When the costs of acquiring other goods go higher, gold’s price remains fairly consistent. While inflation affects everyone, having a strong inflation hedge in your portfolio with gold can offer some protection from inflation as it runs rampant throughout the land.
Quality and Purity
Purity as it pertains to gold bars and bullion is a measurement of the ratio of actual gold to other metallic alloys mixed in with the gold. Gold purity can vary wildly when it comes to stuff like jewelry and coins. But for physical bars, they must be 99.5% pure in order to be considered investment-worthy. Any bar that is less than that purity is not as high quality and investment as something that’s 99.5% or above. But for most gold bullion/bars the purity ratings you’ll see are in the 99.9 or 99.99% range. These percentages refer to the numbers 999 and 9999 you often see when buying gold. Obviously, 99.99% pure is the best fine gold bar one can obtain. But pure gold at 99.9% is still a worthy/quality investment, too. The weight, typically in ounces, grams, or kilograms of the gold bar also matters. Smaller bars are sometimes a better investment because they are easier to store and can stack up in value quite easily.
Gold is renowned for its high levels of liquidity. In very simple terms, liquidity is how easily an asset can be sold on an open market. Both gold and silver are known for their high level of liquidity. Spot prices are used extensively to determine this asset’s liquidity. When investors look at gold, they often check the spot prices first. These prices fluctuate considerably. For instance, in 2008 gold prices increased from the $700 range to the $1000 range per ounce. A few years later, it was almost $1800 for an ounce of gold (circa 2011). A few years ago, prices went down a bit but value remained constant. The prices will fluctuate, but at the end of the day, gold offers incredible stability and consistency—especially in physical form.
Every so often, tumultuous economic times cause the U.S dollar to weaken. When that happens, investors turn to gold for a bit of reprieve. It recovers quickly during economic stress. Prices track opposite of the stock market in general. When investors are nervous about their portfolio, gold steps in as an inflation hedge. When the dollar goes down, gold retains its value. In fact, it retains value better than most currency-backed assets. So although it climbs and prices on occasion, it doesn’t lose its value. This gives it distinct stability other investments do not possess.
Control and Security
Investing in gold bars gives you a lot of agency over your holdings. With physical gold, you don’t have to go through a broker or monitor things digital. The gold is stored in your own home, security box, vault, or depository. You have a lot of control over the security of your gold bars. This means that nobody else is able to access them unless you appoint a custodian. Remember that to take advantage of the liquidity of your gold, you need to be able to return it to a gold vendor and sell. If you lose the gold or have it stolen, that’s going to present a problem. So bolstering your security measures is one of the best practices for ensuring the safety of your gold in storage. Deposit boxes don’t cost very much at all and offer plenty of protection, so consider looking into your available options to secure your gold as much as possible.