As concerns about the state of the global economy increase, people often seek investment ways that will help them ride out any possible financial collapse. At present, the U.S.-China trade conflict and the increasing polarization in world politics present several risks to the stability of financial markets. To protect themselves from any negative fallout, people should seriously consider investing in gold.
In a financial crisis, there is no asset safer to hold on to than gold. This is why during the 2008 financial collapse, demand for gold skyrocketed. The value of paper money can drop drastically depending on how bad the financial system is. During extreme recessions, paper money can become worthless. Whether you hold a $10 or $100 bill, it will have zero value in such situations and you won’t be able to buy anything with it. In contrast, the value of gold will never become zero. It will always remain at a stable level. Even governments will seek to acquire as much gold as possible to strengthen their financial systems. This is why the U.S. still has a law that gives the government the right to confiscate gold owned by the public should the situation demand so. If the government itself sees gold as a valuable reserve during tough times, that in itself is a clear signal for you to buy gold.
Gold is an excellent asset to hedge against inflation. During the 2008 financial crisis, several investors brought gold to counter the Federal Reserve’s quantitative easing. Since the policy aimed to infuse billions of dollars in the American economy, investors were worried that it could lead to inflation. Research conducted by Trinity College discovered gold to be the safest bet to hedge against a possible stock market crash. Gold prices were found to have increased for 15 days after the crash and only declined in value once market conditions turned positive.
Easy storage and liquidity
Gold is one asset that is easy to store. You can buy it and keep it safe inside the locker in your home without paying for any extra cost. In contrast, assets like real estate come with various costs like taxes, maintenance expenses, repair charges, and so on. Gold is also the most liquid asset you can possess after cash. If the economy is going through a tough time, one can always exchange gold for other objects since there will always be people ready to buy it from you.
Zero counterparty risk
Gold does not have any counterparty risk. This is because it is one of the few financial assets that is not someone’s liability at the same time. There are no paper contracts that make someone else liable for your gold. You buy it and you keep it. As simple as that. Such an advantage is non-existent in other assets. For instance, if you own stock, you don’t actually “possess” it. The company can go bankrupt and may have to pay off its creditors, leaving you with no real asset in hand.
Gold is an asset that you can own confidentially. When the economy is reeling, you can purchase gold from a seller without anyone knowing, not even the government. This confidentiality can be crucial in such situations since the government will probably try to amass as much revenue as possible. So if you own shares of a company, the government can increase taxes on dividends and rob you of your rightful returns. With gold, the government cannot do anything as long as you keep it confidential.