09 January 2023

Is Adding Gold To Your Investment Portfolio Essential?


When it comes to your investment portfolio, there are numerous assets you can choose from. But one asset that’s in the news a lot right now is Gold. Is adding gold to your investment portfolio essential? Before you make any rash decisions, it’s important to understand why this metal is so popular in the financial world. But first, a brief history lesson!

A Brief History of Gold

Gold coins and bars for investment portfolio diversification.

Gold’s history in society started long before the ancient Egyptians used it to form jewelry and religious artifacts. But, it wasn’t till 550 B.C. that Gold was first used as a currency. 

This happened because merchants wanted to create an easily transferable form of money. Creating a Gold coin stamped with a seal provided the perfect solution and this practice carried on for generations and millennia. 

Even as far as 1792, the U.S. government legalized this Gold practice by establishing a bimetallic standard! It stated that every monetary unit in the country had to be backed by Gold or silver. For instance, one U.S. dollar was equal to 24.75 grains of Gold. The coins used as money represented the Gold currently deposited at the bank.

But this Gold standard didn’t last forever. In the 1900s, key events led to the transition of Gold out of the monetary system. The federal reserve was created in 1913 and started issuing promissory notes. In turn, these could be redeemed in Gold on demand. In 1971, the U.S. abandoned the Gold standard when its currency stopped being backed by Gold. 

Despite Gold no longer backing the U.S. dollar, it remains relevant. For instance, the International Monetary Fund holds more than one-fifth of the global Gold supply. Additionally, several banks have increased their current Gold reserves. This is in preparation for any negatives in the global economy.

Benefits of adding Gold to your portfolio

Gold offers many advantages for your investment portfolio, including:

1. Wealth preservation

Graph highlighting gold price trends for investment analysis.

Gold has successfully preserved wealth for thousands of generations. But the same cannot be said for paper currencies or bonds. So let’s put things in perspective using this example:

In the early 1970s, an ounce of Gold was worth $35. Imagine you had the choice of holding that Gold ounce or keeping $35. They can buy you the same things. But that would change in the current economy. If you had an ounce of Gold, you could afford more things than in the 1970s. This can’t happen with $35. So you’ve lost wealth by holding the $35 instead of Gold. This is because the Gold value kept increasing while the dollar value fell due to inflation.

2. Inflation hedge

Investor analyzing gold investments for portfolio enhancement.

Historically, Gold serves as a hedge against inflation and the declining U.S. dollar. When investors realize their money is losing value, they shift their investments to hard assets. 

Gold profits from a declining U.S. dollar because it’s globally priced in U.S. dollars. There are two reasons for this situation. First, investors who need to buy Gold must sell their U.S. dollars. This drives the dollar lower as global investors seek to diversify outside the dollar. 

Secondly, a weak dollar makes Gold cheaper for investors holding other currencies. This leads to greater demand from investors holding currencies that have risen because of the dollar.

3. Safe haven asset

With the increase in political and economic uncertainty, investors need financial stability. Historically, unrest has always resulted in the fall of currencies. But, investors who held Gold were able to protect their wealth. 

As such, investors will always buy Gold as a safe haven if there’s a hint of global instability.

4. A diversifying investment

Gold has served as an investment that can diversify your portfolio. It doesn’t matter if you’re concerned about inflation or a declining U.S. dollar. If your goal is simply diversification, this is the perfect asset. It needs to be more closely correlated to stocks, bonds and real estate. This means your finances are protected even when other assets are performing badly.

5. A dividend-paying Asset

Gold stocks appeal more to growth investors than to income investors. This is because they generally rise and fall with the Gold price but are well managed by mining companies. This ensures they remain profitable when the Gold price is down.

Gold stock prices often magnify Gold price increases. A small price increase can lead to huge gains in the best Gold stocks. Owners of Gold stocks also get a much higher return on investment (ROI) than physical Gold owners.

Different ways of owning Gold

One of the main improvements to Gold investment is the variety of options. These include:

Gold Bullion

This refers to the Gold of the purest quality. Central banks can use it as legal tender and hold it in reserves. Investors can buy or sell bullion through reputable dealers that are active on any of the global bullion markets.

Here are a few reasons why you should make your Gold investments with ISA Bullion

You can sign up in easy steps and start locking in Gold trades instantly from anywhere in the world. 

Gold futures

These are contracts traded on exchanges where the buyer agrees to buy a specific quantity of a commodity. This is done for a predetermined date at a future date. Investors use futures contracts to cut the price risk that comes with commodities.

Gold coins

Gold coins are made from precious metals. They are minted in weights that are fractions of one troy ounce. The coins are majorly invested in for their value as inflation hedges.

Gold companies

These are organizations that are involved in Gold mining. Investors can make a profit by buying company stocks.

Gold ETFs

These provide investors with a low-cost, diversified alternative. It lets them invest in Gold-backed assets instead of physical commodities.

Gold mutual funds

These mutual funds invest directly or indirectly in Gold reserves. Investments are made in stocks of producing and distributing organizations. Traders also invest in physical Gold and mining company stocks.

Build up your Gold investment with ISA bullion

Gold is an essential asset to have in your portfolio and serves as a hedge against inflation. Even during the 2022 recession, Gold has managed to hold its value which speaks volumes about its reliability as an asset.

If you want to learn more about how you can add Gold to your portfolio, you can take a leaf from Ray Dalio’s investment strategy here.

Also, learn about 6 famous billionaire investors who are heavily invested in Gold. 

The ISA Bullion trading platform is always available if you’re ready to get started. 

It comes loaded with trading insights and is an ideal Gold & Silver investment app for trading from any location. 

So why wait for Gold’s price to shoot up? Don’t miss out on the next Gold Bull run. Sign up now and make Gold a part of your investment portfolio today. 

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