When Does It Make Financial Sense to Invest in Gold?

Invest in Gold
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Gold may not be as commonly-used an asset as stocks and bonds, but the precious metal could have a strong case for inclusion in your portfolio.

Gold is an alternative asset that tends to perform well under conditions that depress the price of other, morefrequently held assets, such as stocks and bonds. These conditions include recessions, market crashes, and geopolitical uncertainty.

Gold plays an important role in wealth preservation over the longterm. It is less likely to be used as an aggressively high-growth, high-risk investment, but it can be effective as a kind of insurance policy for your portfolio.

If you’re ready to invest in gold, Toronto bullion dealers offer the most straightforward method of incorporating this asset into your holdings. Gold coins and bars can be stored in a safe at home, at a bank, or with third-party storage. They provide investors with direct control over their assets, something they don’t get with a gold Exchange-Traded Fund or other investment products related to the metal.

Below are just some of the reasons why it might be the best next step for your investments.

A Hedge Against Financial Crisis

In the wake of the 2008 financial crisis, gold prices reached new records, peaking at over 30% annual growth in 2011. The Great Recession was a long and deep recession on the heels of a financial crisis that required massive bailouts to keep major banks from collapsing.

The ramifications would continue for years as several European countries faced severe debt crises, and a policy of quantitative easing devalued the dollar.

High Commodity Prices

Commodities are raw goods that can be traded on exchanges. They include materials such as:

  • Agricultural products like grain, coffee, livestock, soybeans, oranges, etc.
  • Energy products like crude oil and natural gas.
  • Lumber and other construction materials.
  • Metals like aluminum, copper, gold, and silver.

Commodity price supercycles are a pattern in commodity prices where prices rise across commodity categories for a period of several years before falling and settling into a trough. Supercycles last much longer than other business cycles. The Bank of Canada has assessed that supercycles can last decades.

There is growing evidence that the world is currently entering another peak in the commodities supercycle, as prices for everything from gas to construction materials have skyrocketed. A supercycle could mean that elevated prices could continue for several years before retreating, and gold will most likely be included.

Rapid Inflation

Inflation is the enemy of cash savings, and inflation right now is picking up to its highest rates in decades. High inflation means that money sitting in a bank account buys less and less. While central banks usually aim to keep inflation around 2% macroeconomic growth with costs, once inflation creeps up to 5% or higher, you can really start to notice rising costs.

High inflation provides many savers with the motivation to convert cash savings into another asset, and gold is one of them.Gold has long been used as a hedge against inflation, as it tends to maintain its purchasing power better than currency.