While there are few true safe-haven assets in the global financial space, gold is undoubtedly one that fits this coveted description.
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In addition to being a relatively secure store of wealth and a precious metal with at least some industrial demand, gold also provides a viable hedge against the inflationary pressures of fiat currency.
This can prove invaluable during a recession and periods of economic decline, which is just one of the reasons why the value of gold soared and achieved brand new highs during the coronavirus pandemic through 2021.
In this post, we’ll explore the main advantages of trading and investing in gold, especially in the current economic climate.
1. Hedge Against Inflation and Risk During a Recession
As we’ve already touched on, the price of gold has historically displayed positive results during various global recessions and economic fluctuations, including both the 2008 financial crisis and the Covid-19 pandemic.
This reaffirms its reputation as a viable hedge against inflation, which can soar against the backdrop of increased government borrowing and the type of quantitative easing measures that follow an economic crisis.
This is certainly a prevalent observation in the current market, with inflation set to rise disproportionately in the Middle East, the US and the UK as lockdown measures are eased across the globe.
Because of this, the demand for gold typically soars during periods of recession, which in turn means that its price moves inversely to wider economic course.
2. Create a Stable and Diversified Portfolio
As a truly unique asset that can help you to hedge against the threat of inflation, the price of gold also moves inversely to the value of other assets.
This undoubtedly makes this most precious of metals a focal point of any investment portfolio during a recession or period of tentative economic recovery, and one that can provide some much-needed diversification.
Gold certainly represents and easy and convenient way to diversify your investment portfolio (we’ll touch on this a little later in the piece), especially if you’re a risk-averse trader with a long-term approach.
Remember, gold is also an asset that’s proven to appreciate incrementally over time, enabling risk-averse investors to safely accrue wealth during challenging and volatile economic times.
3. Gold Can be a Speculative Asset Class
Traditionally, the most obvious way to invest in gold was through physical ownership, especially from the perspective of building and accruing tangible wealth.
However, physical gold also brings with it the risk of depreciation, especially when you consider issues such as the making charge and variable levels of the material’s purity. Then there’s the threat of theft, which must be factored into this inflexible investment vehicle.
So, a far safer way of investing in gold lies in the form of the XAUD instrument. This is available through the forex market via a CDF, which creates a highly speculative vehicle that enables you to profit even in instances where the value of gold declines within a predetermined period of time.
This makes gold a more viable asset all-year round, regardless of the economic climate and the prevailing market conditions.