Gold is not at all times an investment. It can also turn out to be an insurance policy. You can describe the metal as insurance asset. Gold is not certainly perfect. However, investors go for gold when currencies decline.
The natural life of paper notes is fleeting and probably only very few currencies exist in to some extent in the same form at present as these did centuries ago. Besides, currencies become relatively unstable depending on current international and domestic market conditions. Take the case of the Russian Ruble, Ukraine Hyrvnia and Argentine Peso. Even the United States dollar reeled from 50 percent losses because of inflation in the seventies. On the other hand, gold will always remain valuable perpetually.
Without doubt, gold is not useless as barrier versus price increases. There are always reasons that central banks worldwide will maintain gold. However, an article published in the Financial Analysts Journal says otherwise, Investors cannot guard against unpredicted inflation by clinging to gold. For one, the valuable commodity does not have any obvious relationship with inflation. In fact, the price of gold has declined over 30 percent from a high in 2011. This resulted in enormous losses for many investors who believed gold was the perfect safeguard against stimulus-propelled inflation.
There may be a link between gold and inflation. Gold has the tendency to edge higher in inflationary situations but performs weakly during subdued environments of inflation. Notwithstanding conflicting arguments, a large number of investors still believe gold is the best hedge opposed to inflation. Recent studies made by the World Gold Council disclosed that gold h maintained its value compared to other commodities at least during the past five decades. Economic insecurity helped increase prices of this investment. For instance, investor from the United Kingdom witnessed a 34.5 percent yield on gold in 2014 as debt issue in the Euro Zone surged.
Warnings are issued by experts despite positive numbers. The “gold bubble” may be pricked and prices can experience protracted slumps. In the 80s and 90s, gold prices declined by 70 percent. If the pound sterling drops, investors may be at the losing end. Profits rest on capital growth alone because it does not generate revenue (interests or dividends). At the same time, it cannot be accessed as asset class. Many traders are forced to acquire funds put into mining stocks.