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Gold prices slightly rose on Monday ending a month-long dip after the U.S job report sent prices falling for fear the Federal Reserve would maintain high interest rates —though whether or not it is the safe haven for recession-wary investors remains in doubt.
Gold bullion bars and coins are seen for sale.
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Key Facts
Gold is usually seen as a safe haven for investors in times when other markets and economies are facing challenges, and during inflation, gold is seen as a hedge against it— when inflation begins to outpace interest rates, investors seek to put their money in more stable investments.
Gold can also serve as a hedge against recessions when stocks take a dive and investors begin to flock to gold and increase its value, as noted in a report by the Bureau of Labor Statistics.
While other metals are also available for investors, gold has been a more consistent performer – especially compared to silver, which is more volatile and can suffer from economic declines because it has more industrial uses, according to a report from Morgan Stanley.
Read Related Also: An Economic Downturn Can Be A Catalyst For Strategic Change
Gold can be bought to diversify one’s portfolio as it increases in value when paper investments, such as stocks and bonds, decline in value even though gold is more volatile in the short term.
For those looking to preserve their wealth, gold can be a good investment because it appreciates when the U.S. dollar declines in value due to inflation, and 10-year Treasury real yields decrease, according to a J.P. Morgan Wealth Management investment strategy.
How To Invest In Gold
For buyers looking to invest in gold, there are three ways. Gold bullion gold bars and coins can be bought online through licensed retailers, though investors are responsible for their own storage. For those not keen on buying physical gold, gold-exchange traded funds (ETFs) allow a buyer to have exposure to gold as an asset class. Another way to get in on investing in gold is buying gold related stocks, such as mining companies, much like you can buy stocks of tech companies.
Contra
Over the past 50 years—when President Nixon removed the gold standard to curve inflation—gold was seen as a hedge against inflation. But data shows the ratio of gold prices to the consumer price index has fluctuated, like any other asset, according to a report by the Wall Street Journal, and has not proven to always be a reliably safe bet. Research at Duke University also shows gold only serves as an inflation hedge over larger periods of time, while its real price fluctuates just like any other asset.
Scams
Gold and silver have long been a way for scammers to dupe unsuspecting victims into buying the precious metals at an extremely inflated price. Usually they employ scare tactics such as economic recessions and as of late the pandemic to persuade people to invest in their precious metals. The Commodity Futures Trading Commission (CFTC) put out an advisory informing people not to take out cash from their retirement accounts to invest in gold, silver and other precious metals without first consulting a financial advisor. The CFTC also has guidelines on how to spot scammers looking to sell gold bullion and coins and “collectable” coins, which are hard to verify in authenticity and place a market value on.
