Hi Natalie! I did some research online, so I'll list some of the reasons here.
Preservation of Value: Gold's value is more easily preserved, as compared to currency. Gold has been around for a long time, being used as a store of value that is passed from one generation to the next. This may be less true of other assets like wine, art and pieces, who's value may be less certain in the future. This key and unique characteristic of gold is probably why it has been regarded as a safe haven by investors, which leads to it being a hedge aginst risks which are elaborated below.
Hedge aginst the USD: Gold has often seen as a hedge against a falling USD currency. As the USD currency weakened since 1998, the prices of gold increased. As seen from the chart, as the USD fell, the prices of gold shot up. Hence, for investors that have a stake in the US market, having gold can be a hedge against a weaker USD.
Inflation: Gold can also be used as a hedge against inflation, this is because when the general cost of living increases, the price of gold seems to rise as well. When inflation rises, the stock market tends to do poorly but the price of gold rises.
Geopolitical Uncertainty: As gold has usually been seen as a safe haven, during such uncertainty across nations, people usually invest in gold. During less politically stable periods, such as during the EU crises. One of the more recent examples, is how political uncertainty in the Trump adminstration and the US government shutdown had seen spikes in the prices of gold.
Emerging Economies: As the middle income bracket grows in China and India, many of them are buying gold jewellries and ornaments. This has increased the price of gold previously, especially during the month of October, when Indian weddings take place.
Portfolio Diversification and Reduced Portfolio Risk: As per the reasons above, investors turn towards gold to hedge their risks against economic downturns and troubles. It can even be viewed in the lens of Insurance, where buying gold is like paying the premiums for insurance when everything is fine (economy is doing well)
Hi Natalie! I did some research online, so I'll list some of the reasons here.
Preservation of Value: Gold's value is more easily preserved, as compared to currency. Gold has been around for a long time, being used as a store of value that is passed from one generation to the next. This may be less true of other assets like wine, art and pieces, who's value may be less certain in the future. This key and unique characteristic of gold is probably why it has been regarded as a safe haven by investors, which leads to it being a hedge aginst risks which are elaborated below.
Hedge aginst the USD: Gold has often seen as a hedge against a falling USD currency. As the USD currency weakened since 1998, the prices of gold increased. As seen from the chart, as the USD fell, the prices of gold shot up. Hence, for investors that have a stake in the US market, having gold can be a hedge against a weaker USD.
Inflation: Gold can also be used as a hedge against inflation, this is because when the general cost of living increases, the price of gold seems to rise as well. When inflation rises, the stock market tends to do poorly but the price of gold rises.
Geopolitical Uncertainty: As gold has usually been seen as a safe haven, during such uncertainty across nations, people usually invest in gold. During less politically stable periods, such as during the EU crises. One of the more recent examples, is how political uncertainty in the Trump adminstration and the US government shutdown had seen spikes in the prices of gold.
Emerging Economies: As the middle income bracket grows in China and India, many of them are buying gold jewellries and ornaments. This has increased the price of gold previously, especially during the month of October, when Indian weddings take place.
Portfolio Diversification and Reduced Portfolio Risk: As per the reasons above, investors turn towards gold to hedge their risks against economic downturns and troubles. It can even be viewed in the lens of Insurance, where buying gold is like paying the premiums for insurance when everything is fine (economy is doing well)