The past couple of years have been a rollercoaster for gold. Inflationary pressures should have caused gold prices to surge, but consistent interest rate hikes by the U.S. Federal Reserve kept investor attention on other interest-paying assets. And then, in mid-2022, a record gold purchase run by central banks around the world caused gold prices to spike and hit record highs. As central banks reigned in their gold purchases, demand for the precious metal reduced significantly and prices dropped to a five-month low in mid-August.
Despite its relatively volatile performance in recent years, adding gold to your investment portfolio in 2023 may still be a good move. Investors and experts remain unsure of the economy’s direction even as the year draws to a close, adding a degree of uncertainty regarding the market’s performance in the short term.
Although inflation in the United States and other Western countries has cooled significantly from the highs of 2022, an unexpected increase in July is forcing consumers to spend more. Investing in gold will add some stability to your investment portfolio and protect your finances from an uncertain and evolving economy. Gold is especially great at stabilizing portfolios against shifting economic winds during times of uncertainty, such as the one we are currently experiencing.
The yellow metal has long been a safe-haven asset capable of protecting finances from depreciation during recessions and inflation. Although gold may have lost some of its safe-haven appeal in recent years, it is still a great way for investors to stabilize their portfolios and somewhat fortify them against inflationary pressures. Gold is one of the few assets capable of retaining its value through economic upheavals, making it a good hedge against inflation that can preserve investors’ purchasing power over the long-term despite shifts in the greenback’s value.
Battle Bank president Frank Trotter said high inflation periods are an “excellent time” to increase gold allocations. He notes that long-term analysis has consistently found gold to be a decent hedge against inflation. Gold will also allow you to diversify your portfolio, reduce your exposure to risky assets and reduce any losses you may sustain as your other investments lose value, he said. Trotter explains that with a possible recession and even stagflation in the offing, investors can reduce their stock and bond exposure by reallocating some of their resources to gold.
Finally, the precious metal is incredibly liquid compared to assets such as real estate, collectibles and stocks, which can be great investments but are difficult to quickly convert into usable cash. Investors with a quick need for cash will find it easy to quickly offload their gold.
If you would like to diversify your portfolio, add stability, and retain liquidity, you should consider investing in gold.
If you are more inclined to buy gold company shares, then you should do extensive due diligence on extraction companies such as Freeport-McMoRan Inc. (NYSE: FCX) and invest in those that satisfy your requirements.
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