With the unprecedented access to information that has accompanied the advent of the internet, one might expect that society would be fully informed on all issues of financial security. However, when it comes to gold—a key part of that discussion—many people are still unaware of the impact that the precious metal can have on their personal portfolios. To help educate on this topic, U.S. Money Reserve, a leading provider of gold, has released an informational resource to help people learn about some of the basic characteristics of the metal.
Background of the Precious Metal
Since the market value of gold is inextricably linked to its history and nature, it is helpful to take a look at those aspects of the metal before diving into its performance as a financial asset. Known for thousands of years as a beautiful and rare precious metal, gold has a long history of being valued above other metals as a pinnacle of wealth. As the informational resource from the gold company points out, the metal has outlasted every form of paper currency ever issued, which gives it a strong case for being the most influential asset in human history.
The first group of people to extract gold metal from its ore, a process known as smelting, were the Egyptians, around 3600 B.C. About 3,000 years passed before the first gold coins were minted in what is now western Turkey. This tradition of using gold as a store of market value continued into modern times, with the United States establishing a national currency in 1792 that was backed by both gold and silver. Though the country was eventually taken off of the gold standard in 1971 by President Richard Nixon, the metal has continued to function as a widely recognized store of wealth.
Today, although gold bars and coins account for 20 percent of all gold that has been mined, the metal is being used in a number of different applications beyond just currency. Almost half of the gold in circulation today is used in jewelry, an amount equaling about 92,000 tonnes of the metal. An additional 33,200 tonnes is held by central bank reserves, a number that has increased precipitously since the 2008 financial crisis. Gold is also used in applications that take advantage of the malleability and conductivity of the metal, such as electronics.
Methods for Allocating Funds
In the informational resource released by U.S. Money Reserve, the company highlights and summarizes many of the most common places an individual may choose to invest their money. High on this list are assets such as stocks and bonds. As the resource details, these assets entail either buying a piece of ownership in a company, in the former case, or lending money to a company or government, in the latter case. Each of these methods carries its own pros and cons. For stocks, pros can include the dividend payouts and a potential for high returns, whereas cons can include the possibility for high volatility and the uninsured nature of the asset. The company points out that bonds, on the other hand, are typically steady sources of low-risk income—while also noting that returns are typically lower for bonds than many other assets.
Mutual funds are another popular option for individuals looking for a place to invest their money. With this method, an individual’s money is pooled together with the money of other individuals or groups to purchase shares of securities, bonds, and stocks. This method can be beneficial because of how it provides access to a wide variety of options to grow one’s personal wealth. However, the purchase of mutual funds can also be accompanied by high fees associated with paying the person or company that manages the fund. There is also a lack of control associated with mutual funds, as individuals typically have no say regarding how funds are allocated.
Diversifying with Gold
While the above assets can certainly have their place for individuals looking to store their money, the resource from U.S. Money Reserve points out that many would do well to look to the benefits of diversification. By purchasing a variety of assets, individuals can decrease their financial volatility. Though the importance of such a strategy has been well known for quite some time, its validity was underscored as a result of the 2008 financial crisis, during which many people lost a significant amount of their wealth.
#GoldPrices have risen to $1404.30 an ounce this year, and projections show a much higher number. https://t.co/vzIr4p4Pkw pic.twitter.com/VVDL34ux97— U.S. Money Reserve (@USMoneyReserve) July 15, 2019
Gold is a popular asset for portfolio diversification. The precious metal, which is recommended as an alternative asset by many financial advisors, has the benefit of having a low correlation with paper assets. This means that purchasers of gold can be more confident that, should another financial crisis occur, their wealth would not be entirely tied up in assets that are correlated with one another the way many paper assets are. This idea is especially relevant in the present day and age, when many people are wary about the possibility of another financial crisis within their lifetimes.
Benefits of Using Gold as an Asset
Beyond mere diversification, the educational resource presents a host of additional benefits gold can provide when purchased by individuals. One major reason for some of the benefits is the performance of the precious metal over time when compared to other assets. Looking at the last 15 years, gold has risen in market value by 207 percent. That compares favorably to U.S. stocks, which have only gone up by an average of 125 percent in that same period. U.S. bonds over that time have only gained four percent in market value. If you look at the numbers over a 20-year period, gold has outperformed every other asset class, including U.S. stocks, bonds, and other commodities.
The company also highlights how gold can be used as a hedge against inflation. With the purchasing power of the U.S. dollar having fallen dramatically over the years—a 96-percent drop since 1913—individuals have seen the market value of their paper money decrease over time. Since gold is traded in U.S. dollars, however, the falling price of the dollar typically results in a rise in the price of gold. As a result, individuals who are looking to avoid the pitfalls of inflation and maintain the purchasing power of their wealth often turn to gold to help protect personal holdings. Experts predict that these considerations will remain relevant moving forward, as the dollar is estimated to lose more than 30 percent of its buying power in the next 20 years.
Many people also use gold as a so-called “safe haven” asset. The precious metal is known for its ability to safeguard a portfolio against losses during major financial shocks that may devalue other assets. This is because of gold’s low correlation with other major asset classes. Historically, when stocks have trended downward, gold prices have seen an increase. This has contributed to the activities of central banks and other large institutions, which began purchasing gold in large amounts following the last financial crisis.
In light of the above information, the educational resource makes the case that individuals may want to consider purchasing gold for their own portfolios. The precious metal’s power as a manner of insurance, diversifier, and store of market value are just some of the reasons it can make a good component of any individual’s wealth. Seeing how the metal has performed in a historical context and looking to predictions for the world economy can also help motivate individuals to make purchases of the metal for themselves.
Overview of U.S. Money Reserve
Many turn to U.S. Money Reserve as a leading provider of gold, government-issued currency, and financial information. As the only gold company headed by a former director of the U.S. Mint, the company has a unique insight into the overlap of public policy and the pursuit of personal financial security. With a team of highly trained account executives, U.S. Money Reserve has become known for its exceptional level of customer service and dedication to helping customers find solutions that fit their unique portfolios. This level of service has led to the company to be awarded an AAA rating from the Business Consumer Alliance.
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