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June 7, 2022

Why is the price of gold increasing?

Humanity recognised the value of gold as far back as 4000 BC. Ancient peoples used gold as a symbol of wealth and power for many millennia. Thousands of years later, people used it as a currency starting from the 6th millennium BC.

Gold’s introduction into modern economics began in the late 19th century, when most nations adopted the gold standard, before replacing this with fiat currencies in the 1970s.

After this, the price of gold increased gradually until it doubled during the 2008 financial crisis. And the reason why this happened back then is the same reason why the value of gold is increasing now.

Gold prices are positively correlated with inflation

Among the repercussions of Brexit, a pandemic and a war in Europe, UK economists predict that inflation will remain high for the foreseeable future.

Inflation signifies a decrease in how much of a given commodity, such as gold, a currency can buy. The same amount of money buying less gold effectively means that the price per unit of gold increases. So, as inflation rises, so does the value of gold.

Should you invest in gold?

If you’re looking for an asset class that is going to give you large returns, then you’d be better served by another. However, investing in gold has its benefits. Namely, it’s an effective way to safeguard your capital.

Historically, gold has made a good hedge against inflation. It also maintains its value extremely well compared to other assets.

However, it’s important to note that investing in gold has its risks. The value of gold isn’t correlated to stocks, bonds, or real estate. This means that its value doesn’t always increase – even when the market is soaring.

Yet, for the same reason, gold is an important part of a diversified investment strategy and works well as a hedge against a falling stock market.

With these properties, it’s easy to see why this asset class continues to be a popular choice for many investors.
So, what are some ways that you could expose your portfolio to gold, without physically owning it?

Contract for difference (CFD) trading: CFD trading allows traders to profit from gold price movement using derivatives.

Gold mining stocks: gain indirect exposure through holding shares in a gold mining company.

Gold mutual funds or exchange-traded funds: Actively managed funds whose managers track gold prices.

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